By Matt Doiron
Companies hate cutting their dividends, as this action generally receives a poor reception in the market. As a result, an increase in a stock's regular dividend payment can be taken as a sign that management is confident that the company is doing well enough that it can afford to make the higher payments for quite some time. It's also possible that companies which have recently increased their dividend may be more likely to raise it in the future (assuming that the increase was due to improving business conditions) and so makes a good screen for initial ideas for income investors. Read on for our brief thoughts on five stocks that have recently increased their dividend payment by 20% or more:
Western Union (WU) recently increased its quarterly dividend payment to 12.5 cents per share, up from 10 cents. We'd note that the cash transfer services company may face growing competition from direct transfer services that are increasingly being offered by credit card companies, and in fact Western Union's revenue and earnings fell last quarter compared to the first quarter of 2012. We track quarterly 13F filings from hundreds of hedge funds and other notable investors as part of our work developing investment strategies (for example, the most popular small-cap stocks among hedge funds generate an average excess return of 18 percentage points per year) and we can see that Renaissance Technologies, founded by billionaire Jim Simons, initiated a position of 1.8 million shares in Western Union during Q1 (see Renaissance's stock picks).
In late 2012, Cracker Barrel (CBRL) increased its quarterly payment to 50 cents per share. The table service restaurant grew its earnings by 37% in its most recent quarterly report compared to the same period in the previous fiscal year, although revenue growth was much lower and so we wouldn't take this strength as too much of a sign that further increases in the dividend are likely. In addition, we have some value concerns when looking at Cracker Barrel: the trailing P/E is 20, lower than that of many quick service restaurants but a premium to many table-service peers.
We've also identified Tupperware (TUP) as a recent dividend booster, with the new quarterly payment of 62 cents per share generating an annual yield of 3.1%. Business has been quite stable, as might be expected for the packaging and personal care products company. Wall Street analysts are expecting earnings per share to be much better in 2014 than they have been on a trailing basis, and as a result the forward P/E is 13. Cliff Asness's AQR Capital Management disclosed ownership of about 590,000 shares of Tupperware at the end of March (find Asness's favorite stocks).
Packaging Corporation of America (PKG) also increased its dividend recently, and its yield is now 3.3%. At a market capitalization of $4.7 billion, the containerboard and packaging products company carries trailing and forward P/Es of 23 and 14, respectively. Financial performance has in fact been good, with revenue and net income rising considerably in the first quarter of 2013 versus a year earlier. The stock price is up 85% in the last year, but it's still worth looking into whether or not the sell-side is accurate about Packaging Corp's prospects.
Containership owner and operator Seaspan (SSW) rounds out our list of stocks with recent dividend increases of 20% or more. Specifically, the company recently boosted its quarterly payment from 25 cents to 31.3 cents, resulting in a yield of over 5% at current prices. With demand for containerships depending on macro activity, Seaspan's beta is fairly high at 1.6. Between the high yield and recent growth numbers the market has bid up Seaspan's stock price in earnings terms, to the point where it trades at a trailing P/E of 27. Still, the high yield makes Seaspan worth a look from income investors.