We took at look at stocks with dividends poised to explode higher. These names all have the cash, forward-thinking management and shareholder-friendly policies to return cash to stakeholders. Here's what we discovered:
Stryker (SYK): Stryker revenues exceeded $7 billion for the first time in 2010 on the backs of aging boomers needing hip replacements. The company acquired the neurovascular business of Boston Scientific (BSX), smartly leveraging its patent portfolio to expand into this less mature market. A commitment to its employees has earned Stryker a place among the 100 Best Places to Work. We think shares should fetch around $80 apiece in 2012 using a 10% discount rate to arrive at this estimate.
Stryker announced a first quarter dividend of $0.18. This is only the second year that Stryker has given quarterly dividends. In 2010, Stryker moved away from annual cash dividends to quarterly cash dividends. The current forward annual dividend yield is 1.17%. SYK has a payout ratio of 21%. It also has a little less than $1.5 billion in operating cash flow. We think Stryker has cemented itself within the industry and is a leader in innovation and will see growth because of it. They have also been raising dividends every year for 20 years and I think they will maintain this reputation moving forward.
We think Stryker offers a better bet than Zimmer (ZMH) due to Stryker's growth prospects.
Fastenal (FAST): Fastenal has grown its dividend payouts by an average of 45% over each of the last 10 years. OK, so it might be cheating a little bit when you start with a split corrected annualized payout of $.0025, but then again, it also demonstrates the power of growth. In recent years, the growth rate has slowed a touch, but the 12 years of consecutive payout increases add stability.
The current yield is just 1.63%, but if FAST can keep up the dividend growth rates there shouldn’t be too much concern for future yield on cost. A spot-on 1.00 beta and 56% payout ratio leave solid opportunities for the future. The company has turned selling fasteners into an ultra-profitable business. We value shares at $80 apiece in 2012 using a 10% cost of equity.
Cisco Systems Inc. (CSCO): Cisco announced the company’s first ever cash dividend in the first quarter of 2011. The Board of Directors approved a $0.06 quarterly dividend. I believe that this shows a shift in mentality for Cisco. It shows that they are no longer a small player in the field and they are looking to return value to shareholders. According to Cisco’s website, Frank Calderoni Executive Vice President & Chief Financial Officer of Cisco said:
This dividend complements our leading position, and is an important part of our commitment to bring value to shareholders.
Cisco has enough cash ($10.49 billion operating cash flow TTM) to cover these dividends. Cisco Systems is the leader in networking and communications equipment and software. They sell servers, routers, switching components and various other products. They also provide a range of security products like video and audio surveillance, intrusion prevention, and web and email security products. CSCO’s market cap is $89.02 billion which puts it above competitors like Hewlett-Packard (HPQ) at $77.34 billion market cap and Dell Inc. (DELL) at $29.69 billion market cap. It is also far behind computer hardware powerhouses IBM and Apple Inc (APPL), which have market caps of $203.25 billion and $311.10 billion respectively
Intel Corporation (INTC): Intel is a household name, and they produce chips that go into a bunch of things. They are most popularly known for their computing chips. They make microprocessors that are seen in laptops, netbooks, desktops, servers, storage devices and networks. They sell mainly to commercial businesses that use Intel’s circuits within their products.
Intel has a payout ratio of 30.27%, with a quarterly dividend of $0.18. With a forward annual dividend yield of 3%, Intel is a buy, in my opinion. They have comfortable operating margins at 35.3% and earnings per share growth of 19.4%. Their return on equity stands at 27%. Some think that they are under attack by competitors in the microprocessor space, mainly Advanced Micro Devices (AMD). I believe that Intel has an economic moat that will allow them to secure deals down the road. I also think Intel will see profits, as the demand for microprocessors increases.
Sasol Ltd. (SSL): Sasol is a chemical and energy company. They produce and sell a whole bunch of different chemicals, alcohols, explosives, and other things. Sasol also mines coal and has a large interest in Natref refinery in South Africa. They even have their hand in refining crude oil. This Johannesburg, South Africa company was founded in 1950 and operates globally.
Sasol has a dividend yield of 3.07% and a semi-annual dividend payment. Their payout ratio is 41% and we believe that Sasol is a rocket ready to take off. They raised their interim dividend by 11% this year and according to their website they have made investments in multiple projects that have them in a great position to see growth down the road. According to their interim financial results, Sasol’s earnings per share jumped by 22%. I would rate Sasol a buy. They just had a dividend payment of $0.46 in April, but historically the first dividend of the year has been substantially lower than the end-of-year dividend. For example, in 2010 the interim dividend was $0.38 and the final dividend was $1.10.
Safe Bulkers (SB): Safe Bulkers is in the shipping industry. It has been a rough month for the shipping industry; the stock has dropped over a two dollar in value, but the sharp decline has leveled. The thing to know about SB and the shipping industry is that the industry has been incredibly volatile during the course of the recession, and it is difficult to predict the direction of the stock.
It is also difficult to point to a specific reason for any dip or increase in stock value. Downside is likely limited in these shares. Closing has a dividend is $.60, and the subsequent yield is 8.6%. Shares have a price-earnings multiple of 4.46.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.