As the economy continues to recover, a lot of companies are finding their running balance sheets with record levels of cash. Returning cash to shareholders is becoming an increasingly important theme which a lot of investors are watching in 2012. The most watched dividend initiation happened last week with Apple (AAPL) initiating $2.65 quarterly dividend. JP Morgan's (JPM) dividend increase on 13th March, two days before scheduled stress test result, was another major announcement that cheered investors.
In this article, I will be discussing five stocks which have increased their dividends significantly in the current year. The following is a list of these five companies and their old and new dividend rates.
Fidelity National Information Services
Gannett Co., Inc.
Cliffs Natural Resources Inc
Fidelity National Information Services, Inc. (FIS) is a global provider of banking and payments technologies. The Company is engaged in payment processing and banking solutions, providing software, services and outsourcing of the technology. The company recently announced that it would be increasing its dividend from $0.20 to $0.80. Additionally, the Company announced that it will increase its share repurchase authorization from $361 million to $1 billion.
This increase comes along with a shift management strategy towards driving organic revenue growth through optimizing the current product portfolio, as opposed to gaining more product and scale through large acquisitions. I believe this change from an aggressive M&A strategy to more of an organic growth-oriented strategy will help allay some of the investors concerns and lead to multiple expansion for the company.
The company is trading at a discount to the S&P and its peer Fiserv (FISV). I recommend buying the company given expected 12-15% EPS growth over the next few years, 4-7% organic revenue growth, strong FCF, and a good dividend yield of 2.4%.
Gannett Co., Inc. (GCI) is an international media and marketing solutions company, delivering content and services across an integrated, multi-platform portfolio. The Company's portfolio of national brands includes USA TODAY and CareerBuilder. The company increased its dividend 150% to $0.80 per share in February. It also announced its plans to buy ~$300 mn worth of shares in next two years. GCI expects to return about $1.3 billion of cash to holders by 2015.
GCI also laid a plan to lift total revenues 2-4% annually through 2015. Besides circulation pricing increases, three key growth areas highlighted in the plan were improving user engagement of USA Today sports network; improving client adoption in GannettLocal targeting GCI's 150k SMB clients; and Digital Subscriptions.
If management's growth plan work, one can expect a further upside to the stock price and a dividend increase. In the meantime, the attractive 5.20% yield will provide a downside support to the stock price.
Cliffs Natural Resources Inc. (CLF) is an international mining and natural resources company. The Company is an iron ore producer and a producer of metallurgical coal. The company recently raised its quarterly dividend by 123% to $0.625/shr from a previous $0.28, reinforcing a strong outlook for cash generation.
This announcement implies a strategic shift in company's policy from transformational acquisitions to focusing more on organic growth. Going forward, outlook for both volume and iron ore prices remain strong. Also, the Consolidated Thompson acquisition and a potential coal turnaround should support growth.
The company's current dividend yield of 3.60% remains one of the strongest among its peers. Further, possibility of more dividend hikes in the future cannot be ruled out, given company's strong FCF generation and a history of multiple dividend increases in the recent past. I recommend buying the stock.
Macy's, Inc. (M), operates department stores and Internet Web sites in the United States. The company's retail stores and Internet Web sites sell a range of merchandise, including men's, women's, and children's apparel and accessories, cosmetics, home furnishings, and other consumer goods. It also operates Bloomingdale's Outlet stores.
Macy's announced a two-fold increase in its quarterly dividend of 10 cents to 20 cents a share. The increased dividend will be paid on April 2, 2012, to stockholders of record as on March 15, 2012. Macy's reported impressive 4Q 2011 results with sales up by 5% y-y. Importantly, EBIT margins improved, driven by SG&A leverage and credit improvement. Looking forward, the company's management provided a conservative guidance for 2012 with 3.5% comparable growth and slightly better than expected EPS range. Given its management's track record of under-promising and over-delivering, I am positive that company can do better than its guidance.
Same store sales in 2012 are expected to be strong, with the forthcoming roll out of site-to-store-to-door (290 stores by Fall 2012). Operational improvement initiatives by effective inventory management is expected to provide long term benefits including fewer out of stocks, increased turns and lower markdown expense. Further, as J.C. Penny (JCP) moves away from promotions, Macy's is in a favorable position for potential market share gains. Based on this opportunity for market share gain, fundamental improvement driven by strategic initiatives, current dividend yield of 2% and share buybacks, I believe Macy's deserves a premium over its peers and recommend a buy on it.
MasterCard (MA) doubled its dividend payments from $0.60 to $1.20 in February. Although it is not a high yield stock, its secular long term growth story makes me bullish on the company. The company will continue to benefit from the secular shift in spending from paper to plastic globally for the next several years.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.