As you know, we're constantly on the lookout for companies announcing dividend increases. Why? Because one increase often foreshadows another. And consistent raises are at the heart of every worthwhile dividend investment we've ever made.
Truth is, companies that boost their dividends, year in and year out, outperform every other type of stock on the planet. That's why, at least once a month, we look back on some recent dividend increases to see if the hikes justify making a spot in our portfolios for the companies in question.
One of the two companies we're highlighting today should be familiar. Back on November 4, we told you to add the stock to your portfolio on the promise of a dividend hike. Well, the company delivered, sending shares 6% higher.
That's a solid move for a dividend stock in a month's time. Thankfully, it's not too late to profit. Here's why, along with a fresh new dividend growth opportunity…
When Hikes Happen
On November 12, the company announced a 10.3% hike to its quarterly dividend, to $0.48 per share. (At current prices, that works out to a respectable yield of 2.4%.) As long as you own the stock by December 13, you'll be entitled to receive the next payment. I recommend you hurry up and buy shares in time, if you haven't done so already.
On the quarterly conference call, management revealed a 9% increase in profits, thanks to steady increases in the payroll amounts that ADP is processing for clients. I told you before, as the labor market keeps improving, so, too, will ADP's profitability. In fact, the company estimates that profits will increase 8% to 10% next year.
Personally, I think those estimates are a tad conservative. Nevertheless, the earnings growth alone should propel share prices higher. But that's not the only thing … management appears hell-bent on helping, too.
In the most recent quarter, they repurchased another 4.2 million shares of stock, worth more than $300 million. And over 10 million shares were repurchased in the last year.
Add it all up, and ADP remains a safe way to get paid to bet on an improving economy. Don't forget, it also provides a nice inflation hedge. What's not to like?
Get Papered Up With Neenah
For those of you who followed our advice on ADP, here's a new opportunity for you - Neenah Paper, Inc. (NP).
This international producer of premium fine papers and technical products has been around since 1873. But the company didn't start paying a dividend until 2005, after being spun out from paper giant, Kimberly Clark (KMB). It's certainly making up for lost time, though.
Last month, the company announced its third dividend hike of the year. This time around, management increased the quarterly payout by 20%, from $0.20 to $0.24 per share. "Our businesses continue to perform well and generate strong cash flows," says CEO John O'Donnell. Clearly.
Over time, O'Donnell expects the stock to yield 3% to 4%, which means there are more increases to come. (At current prices, the stock only yields 2.4%.) With a dividend payout ratio (DRP) of 22.3%, the company can certainly afford another hike.
Will it come before Christmas? That might be pushing it. But another increase in the first half of next year certainly wouldn't be out of the question. The analyst over at Standard & Poor's currently rates the stock a "Buy." And I agree. Especially since shares are so cheap.
The stock currently trades for just under 10 times forward earnings, which represents a 60% discount to the average stock in the S&P 500 Index. Big bargains like that seldom last long in the market. So I recommend you capitalize on this one before it's gone, too.