6 High Yielding Companies Boosting Distributions

While some investors viewed Petsmart’s 233% dividend raise as extremely important, I found the increases from several high yield stocks to be very intriguing as well. First of all, as a dividend growth investor my goal is to generate a double digit yield on cost after years of consistent dividend increases by the companies I have included in my portfolio. But what if I could purchase dividend stocks that already spot double-digit dividend distributions? Regular readers of my blog know that I do not like chasing high yielding stocks blindly. My experience with American Capital (ACAS), which suspended its dividend is a lesson that will never be forgotten. Despite the fact that the company recently announced a dividend of $1.07/share in order to maintain its status of a business development company, 90% of which would be paid in additional shares and the rest in cash, the company faces troubles with its creditors.

Two of the companies that raised distributions, American Capital Agency Corp. and Hatteras Financial Corp. have fluctuating dividend payments. The other one, Prospect Capital has raised distributions for 19 consecutive quarters. Most of these distributions consist of earnings and returns of capital. Companies could only afford paying such distributions by selling additional stock and raising more money by selling additional debt in order to grow and sustain operations.
The double digit current yields, also show investors pricing in a high probability of a dividend cut.

Well let’s look at last weeks dividend increases first:

Hatteras Financial Corp. (HTS), which invests in adjustable-rate and hybrid adjustable-rate single-family residential mortgage pass-through securities guaranteed or issued by the United States Government agency, or by the United States Government-sponsored entity, boosted its quarterly distributions to $1.10 per share. This represents a 4.8% increase for this real estate investment trust compared to its previous distribution. Hatteras Financial Corp. has a fluctuating dividend payment, which has ranged between $0.75 and $1.05 per share. The stock currently yields 15.90%.

Duke Energy (DUK), which operates as an energy company in the Americas, raised its quarterly dividend to 24 cents per share, which represented an increase of $0.01 over the previous level. It appears that Duke Energy has regularly increased its quarterly dividend since 2005, accounting for spinning off its natural gas transmission and storage business into Spectra Energy in 2007. The stock currently yields 6.60%.

American Capital Agency Corp. (AGNC), which invests in agency securities for which the principal and interest payments are guaranteed by a U.S. Government agency, increased its quarterly dividend to $1.50 per share, up from the previous distribution of $0.85/share. The stock currently yields 25.40%.

Prospect Capital Corporation (PSEC), which is a closed-end investment company that lends to and invests in private and microcap public businesses, increased its quarterly dividend to 40.625 cents per share. This dividend marks Prospect Capital's 19th consecutive quarterly increase. The company’s investment objective is to generate both current income and long-term capital appreciation through debt and equity investments. The stock currently yields 16.90%.

PetSmart, Inc. (PETM), which provides products, services, and solutions for pets in North America., increased its quarterly dividend by a staggering 233% to 10 cents per share. The company’s Board of Directors also authorized a $350 million stock purchase plan that expires in January 2012. PetSmart, Inc. initiated a dividend payment policy in 2003 at 2 cents/share. The company has increased its dividend only once , in 2004 to 3 cents/share and kept it unchanged since, until the most recent increase. The stock currently yields 1.90%.

Darden Restaurants Inc. (DRI), which engages in the ownership and operation of full-service restaurants in the United States and Canada, increased its quarterly dividend by 25% to 25 cents per share. Darden Restaurants Inc has consistently increased its quarterly since 2005. The stock currently yields 3.10%.

As usual there’s not free lunch on Wall Street. Thus, before getting too excited about the high yielding dividend raisers from last week, research them carefully and make sure you understand how their business model works. In a market where cash is king, relying on the capital markets to fund growth could turn very expensive if done at the wrong moment.

Disclosure: None

Comments

[THofler:]

I took AGNC's just declared dividend & added it to the last 3 paid dividends. Today's (Monday) yield is 19.2%. Huge, but not quite as crazy as 25.4%.

Jun 30 01:05 AM

[whisperonth...:]

I just took the dividend.

Jun 30 09:07 AM

[Alan Young:]

Comparing the dividend performance of a corporation like DUK, where dividends are a discretionary (and tiny) fraction of cash flow, with those of REITs and BDCs, which are required to pay 90% of cash flow as dividends, makes no sense. The business models, and the strengths or weaknesses that might be inferred from dividend changes, are completely different. I suspect you have no idea what you are doing, but good luck.

Jun 30 10:27 AM

[Dividend Gr...:]

Alan,

I was mainly complaining against the volatility in dividends and their not being smooth. PSEC has a pretty smooth and non-volatile dividend payment. HTS and AGNC do not have a long enough history of paying out a distribution, but based off the data I have, it is volatile. It's true that REITs and BDC have to pay out almost all of their earnings. But if the earnings and their cash flows are volatile, then your dividend income form them would be subject to volatility, right?
Some investors are fine with that, as the high current yield provides some buffer. I personally like companies with a smooth and steady dividend stream. It makes my budgeting much easier.

Jun 30 01:03 PM

[Dividend Gr...:]

I actually mutliplied the latest distribution by 4. I doubt that AGNC would maintain a 1.50 dividend/quarter, since I believe 1/5th of that was a one time gain.


On Jun 30 01:05 AM THofler wrote:

> I took AGNC's just declared dividend & added it to the last 3
> paid dividends. Today's (Monday) yield is 19.2%. Huge, but not quite
> as crazy as 25.4%.

Jun 30 01:09 PM

[BCInvestor:]

DKAM is listed in this article but they offer no dividend.

Jul 08 09:22 PM

[Cantbeme:]

DKAM was listed because they file to offer a one time shareholder cash dividend, and a dividend rights offering. The first step to becoming listed on Nasdaq. They always let places like this know before the investing public!

Jul 21 11:53 AM