Future Dividend Increase Candidates

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 |  Includes: ARTW, BOCH, CCF, HFBL, HLF, HOT, NSU, SHEN, STX, TRLG, WSCI
by: Stock Market Joe

Companies that raise their dividend often have a large increase in share price over the next few days after the dividend hike. Share prices also increase over the next months as individual and institutional investors increase the allocation within these companies.

This purpose of this article is to highlight companies that:

  1. Have not increased their dividend within a 1 year period
  2. Have not decreased their dividend within a 1 year period
  3. Have positive sales growth
  4. Have positive Free Cash Flows which may be used to increase future dividends
  5. Have positive technical characteristics for short-term price appreciation
  6. Operating Income and EPS has increased Y/Y
  7. Have a Payout Ratio less than 50%
Company Ticker FCF Yield Dividend Sales Y/Y Net Margin
Art's-Way Manufacturing ARTW 16.0% 1.5% 29.1% 6.9%
Bank of Commerce Holdings BOCH 7.7% 2.3% 12.6% 12.0%
Chase CCF 5.9% 2.1% 24.6% 6.2%
Home Federal Bancorp HFBL 21.7% 1.4% 31.0% 22.7%
Herbalife HLF 9.1% 2.9% 16.8% 11.7%
Starwood Hotels & Resorts HOT 6.7% 2.0% 33.9% 9.0%
Nevsun Resources NSU 24.8% 2.5% 41.3% 26.9%
Shenandoah Telecommunication SHEN 7.9% 2.2% 11.3% 5.7%
Seagate Technology STX 26.8% 4.7% 17.9% 19.3%
True Religion Apparel TRLG 6.0% 2.9% 12.4% 9.8%
WSI Industries WSCI 7.0% 2.5% 14.7% 4.9%
Click to enlarge

Top Picks

Nevsun Resources, Seagate Technology, and Home Federal Bancorp all have a Free Cash Flow Yield of over 20% and a Payout Ratio of under 20% (11.7%, 19.4%, and 19.7% respectively). Only Seagate Technologies has increased their dividend over the past 5 years. It's time for long-term investors to be rewarded for their holdings in NSU and HFBL.

Icahn and Herbalife

As many of us are fully aware, Ackman and Icahn are still in a bitter fight to the end over Herbalife . As an activist investor, Icahn has the power of money on his side to influence the decisions of management. As Ackman has a very large short position in Herbalife, a historic short-squeeze is in order if Herbalife raises their dividend. The company already pays a 2.9% dividend and has a payout ratio of 28.3% with a free cash flow yield of 9.1%. I believe a dividend increase is in order for Herbalife as there are few things that display the confidence of management more than a dividend increase, and with Icahn at the helm of investing, things might get even more interesting very soon.

Speculative Dividend Increase

Bank of Commerce Holdings may increase the dividend paid to shareholders, but this is more doubtful than others contained in the list above. Over the last 3 years, the dividend has decreased by 12.6% and has decreased by 17.8% over the last 5 years. The dividend payout ratio is only at 27.7% though. Is this truly a reason to be wary of investing capital in BOCH, or is this simply due to the company increasing liquidity within the company as many financial services companies did post the 2008 financial crisis?

The Value Argument

Many of these companies also exhibit a lower P/E ratio when compared to their sector and industry peers. If a dividend increase become reality, the P/E ratios may increase and catch up to their peers.

Company Ticker P/E Industry Sector
Art's-Way Manufacturing ARTW 10.39 18.18 22.98
Bank of Commerce Holdings BOCH 13.34 34.41 37.23
Chase CCF 16.55 35.51 22.98
Home Federal Bancorp HFBL 14.74 34.41 37.23
Herbalife HLF 10.20 49.41 27.04
Starwood Hotels & Resorts HOT 26.16 33.20 14.13
Nevsun Resources NSU 4.63 12.72 18.18
Shenandoah Telecommunication SHEN 23.25 18.16 16.22
Seagate Technology STX 4.29 17.76 24.33
True Religion Apparel TRLG 15.35 29.96 14.13
WSI Industries WSCI 10.31 35.51 22.98
Click to enlarge

Disclosure: I am long HLF, HOT, STX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: I may initiate a position in BOCH, NSU, or WSCI in the upcoming week.