Four Stocks Rewarding Investors with Dividend Raises

Investors have typically concerned themselves with maximizing total returns over time. Total returns are the sum of capital gains and dividends received. Over the past two years, markets have produced negative total returns to investors, which is especially troublesome for those who were planning to retire in the coming few years. Instead of focusing on total returns, however, future retirees could focus on generating sustainable dividend income from their portfolios, which is much less volatile that capital gains. In fact, over the past decade, dividends represented the only income that investors have generated in the markets. In essence, stockholders are “paid for waiting” until their portfolios rebound. Especially valuable are those dividend stocks that not only pay reliable dividends, but also raise them regularly. I have highlighted four such companies, which announced their intentions to reward stockholders with dividend raises:

RPM International Inc. (RPM), which operates as a food company in North America and internationally, increased its quarterly dividend by 2.5% to 20.50 cents per share. RPM International Inc. is a dividend aristocrat, which has raised distributions for 36 consecutive years in a row. The stock currently yields 4.30%.

ConocoPhillips (COP), which is the fourth largest integrated oil and gas company in the US, increased its quarterly dividend by 6% to 50 cents per share. This is the ninth consecutive annual dividend increase for ConocoPhillips. The stock currently yields 3.80%.

ONEOK Partners, L.P. (OKS) engages in the ownership and management of natural gas gathering, processing, storage, and interstate and intrastate pipeline assets, as well as natural gas liquids (NGLs) gathering and distribution pipelines. This Master Limited Partnership increased its quarterly distributions by 0.9% to $1.09 per unit. ONEOK Partners has consistently raised distributions only since 2006. The MLP’s units currently yield 8.10%.

"The distribution increase reflects the benefit of our recently completed growth projects, which have increased our fee-based earnings, as well as an improved capital market environment," said John W. Gibson, chairman and chief executive officer of the general partner of ONEOK Partners. "As volumes behind these projects continue to ramp up, we anticipate additional opportunities to increase our distributions in the future."

Reynolds American Inc. (RAI), which manufactures cigarettes and other tobacco products in the United States, increased its quarterly dividend by 5.9% to 90 cents per share. Despite the fact that Reynolds American Inc. is not a consistent dividend raiser, it has increased distributions by 132% over the past decade. The stock currently yields 7.70%.

ConocoPhillips looks like an interesting candidate to add to my watchlist. I would keep current on any events in the company and would look to initiate a position there on dips, provided that such opportunities arise.

Full Disclosure: Long RPM

Comments

[Shishir Nigam:]

Reynolds - $0.90 provides a very impressive yield on a common stock. However, $0.90 dividend per quarter implies a dividend/share of $3.60 annually. Going by their latest financials, their LTM EPS was $2.13/share. That implies a 169% payout ratio. Even if I use the EPS for the year ended Dec 31, 2008 so as to leave out the bad quarters, it's a payout ratio of 79%. I hope they have some serious profits coming up in Q3 results to justify that dividend increase!

RPM - RPM has an EPS of $0.958 for the year ending Aug 31, 09, implying a payout ratio of about 86%, again a pretty high payout.

ConocoPhillips - As for COP, they haven't had a full year of positive earnings in either the 12 months ending June 30, 09 or even 12 months ending in Dec 31, 08. Going by the latest quarter alone, a $0.50 payout implies a payout ratio of 58%. Though COP has a good amount of cash cushion on its balance sheet. I'm looking at picking up COP as well.

ONEOK - OKS had an EPS of $4.728 for the year ended June 30, 09, which translates to a payout ratio of 92% with a quarterly dividend of $1.09. Seems a little tight here as well.

Increasing dividends can reflect confidence in the future but are just as likely the result of over-optimistic management projections.

For more analysis, check out my blog: youngandinvested.com

Oct 12 04:44 PM

[No Free Cake:]

Shishir, RAI has a strong free cash flow, even after dividends, for trailing twelve months (and all of at least last 3 years). You might want to explore further the divergence between earnings and cash flow. Using earnings at face value can often be misleading.

As for OKS, it's an MLP. Payout Ratios don't apply the same to MLPs. You should do some more research on this.

And, as Dividend Growth Investor pointed out in a previous article:

"Actually the reason for COP's "negative earnings" in 2008 was a goodwill impairment , which is a non cash charge. Companies these days are required to evaluate their goodwill versus the carrying value of the goodwill to determine if an impairment is necessary. Without this item, COP would have achieved record earnings in 2008.."

Oct 13 10:46 AM

[fortypercent:]

rpm is not a food company. is that a typo or a different error?

Oct 13 03:45 PM

[Rickster:]

Yes MLPs are required to pay out 90% of there profits to remain a MLP
Hence OKS is a good buy consistant dividend parent CO. OKE
And COP had a goodwill write off. There profits are solid and has one of the higher dividends in the sector.

Oct 14 05:03 PM