Dividend reinvestment plans have gained in popularity among investors. The uncertain stock and commodity market have led investors to seek investment in companies offering competitive yields and returns to shareholders. I have short listed three companies that offer the best dividend reinvestment plans. Importantly, aside from being shareholder friendly, these companies are in a position to provide returns from capital appreciation as well.
Coca-Cola Enterprises Inc. (CCE):
Coca-Cola Enterprise is in a good position to outperform the market in future. The company has recorded five years of continuous growth. Furthermore, since 2006, Coca-Cola’s dividends have increased by more than 100%. The enterprise has a strong product mix and portfolio which will enable the company to achieve its long term objectives. The company’s management foresees long term revenue growth of 4%-6% and operating income growth of 6%-8%. The company also targets to improve its ROIC by more than 20 basis points per year in the long run.
Around the price level of $26, CCE trades at a discounted price to earnings ratio of 13.5 times, while its peers Danone (OTCQX:DANOY) and Kraft Foods Inc.(KFT) trade at a price to earnings ratio of 15 and 20, respectively. It also trades at a discounted price to earnings growth ratio (estimated 5 years) of 1.08. As per the latest quarterly report, CCE recorded revenue growth of 39.1%, which is higher than DANOY.PK’s and KFT’s growth of 16.3% and 13.3%, respectively. CCE’s gross and operating margins hover around 36.73% and 13.3%, respectively, while its trailing twelve months dividend yield stands at 2.1%. The five year average dividend yield is 1.6%. Institutions hold up to 82.9% of the total outstanding stock.
In September, the company announced a new share repurchase program. After reviewing the share purchase announcement, UBS upgraded its rating on the stock from neutral to buy with a target price of $30, thereby implying a potential upside of 18%. Multiple growth drivers exist for Coca Cola Enterprises, including franchise leadership, consumer marketing, and innovations with a focus on brand development. CCE’s dividend reinvestment plan is highly recommended as I believe that the company will continue to give high returns to its investors. The company’s dividend reinvestment plan has a sale fee of $10 with no account setup, investment, or maintenance fee. An investor needs to purchase at least one share to enroll in this plan.
ConocoPhillips (COP): COP has positioned itself as a growth company, with a focus on capital investment towards exploration and production. Moreover, the company continues to give 10%+ dividend growth to its shareholders. The company has a major repurchase program in progress which will add to shareholders’ return. Trading around $69, COP offers a potential upside of 17% to its one year estimated target price of $79. It has a 52 week range of $58.37 and $81.80. COP enjoys a price to earnings ratio of 8.5 times against an industry average of 12 times. COP has a trailing twelve months earnings per share of $7.93 and a dividend yield of 3.9%, while the payout ratio is 30%. Moreover, 73.3% of the stock is held by institutions.
COP's financial performance is better than its competitors in many ways. As per the quarterly results, COP posted revenue growth of $45.7% against BP plc (BP) and Chevron Corp (CVX) revenue growth of 37.5% and 30.6%, respectively. The strength of the company lies in its debt to equity ratio of 39.48% which the company plans to reduce in future. On July 15, UBS lowered its target price for the stock from $81 to $80. UBS believes that COP’s tax-free spin off of its R&M business will not bring any meaningful value to the shareholders. ConocoPhillips focuses towards exploration and production with an aim to give high return to shareholders and, therefore, COP’s dividend reinvestment is recommended. For enrollment, an investor needs to make an initial investment of $250. It has no account setup, automatic investment, or optional cash investment fee. The total cost of the sales fee is $15.
ConAgra Foods (CAG):
ConAgra, a fast growing food company, is establishing its roots in emerging markets. Trading around the price level of $27, CAG offers a high dividend yield of 3.8% ($0.96 per share). It has a beta of 0.68 and a 52-week range of $21.02 and $26.60, while the payout ratio is 52%. CAG has the potential to increase its market share in the developed and emerging markets. To drive growth, company has taken multiple measures to deliver the company’s food products at every possible location. Moreover, CAG’s launch of fruit pies in 2010 was a big hit. This success has inspired CAG to further launch such innovative products in the market. CAG’s acquisition of Marie Callender's desserts business in 2011 will enable CAG to post double digit growth in that product line.
CAG has strong cash flow that will help the company maintain high dividends. Moreover, the company has already received approval from its board to repurchase $125 million worth of shares. In a competitive scenario, CAG’s operating margin of 10.36% is better than the industry average of 8%. CAG trades at a discounted price to earnings of 14.55 times, while the industry average is 16.44 times. CAG’s emphasis on new products and capacity expansion, along with supply chain management will result in greater growth. I believe that the company will be able to show strong growth in future and, therefore, recommend CAG's DRIP for investment. The plan requires the mere purchase of at least one share for participation. It has a sale fee of $15 with no account setup, dividend reinvestment maintenance or account set up fee.