With earnings season dominating the calendar, and Reuters reporting that 80% of the S&P 500 companies that have reported earnings so far have beaten estimates, this gives us the opportunity to look at companies with strong dividend performance that have been upgraded over the past week.
Although this article does not focus on high-yielding dividends that look like a no-brainer for investment, the stocks listed below have a strong dividend performance measured by modest payout ratios, a long string of returning value to shareholders starting from a dividend distribution history of 6 years and dividend growth to assure that the yield-on-cost will increase over time. I have provided the price target of each upgrade, so a conclusion of fair or undervalue can be reached for the stock price.
Mining equipment, turbines and engines manufacturer Caterpillar Inc. (CAT) was upgraded by Longbow Research on Monday, 16th April, from a "Neutral" rating to a "Buy" rating with a price target of $132.
CAT has a dividend yield of 1.71%, a sustainable payout ratio of 24.32% and has been paying a dividend for 50 years. Although its dividend is below the other two in this article, its 5-year dividend growth rate is in double digit territory at 10.35%.
The stock closed at $107.73 on Friday, and has risen 18.91% year to date.
Circuits designer and manufacturer Linear Technology Corporation (LLTC) was upgraded by Longbow Research on Monday, 16th April from a "Neutral" rating to a "Buy" rating with a price target of $40.
LLTC has a dividend yield of 2.92%, a low payout ratio of 37.60% and has been paying a dividend for 19 years. The 5-year dividend growth rate is in the low double digits of 13.46%.
The stock closed at $32.33 on Friday, and has risen 7.66% year to date.
Food and drug retailer Safeway Inc. (SWY) was upgraded by Deutsche Bank on Thursday, 19th April, from a "Sell" rating to a "Hold" rating with a revised price target of $22 from $18.
SWY has a dividend yield of 2.84%, a modest payout ratio of 37.25% and has been paying a dividend for 6 years. The 5-year dividend growth rate is at an outstanding 20.06%.
The stock closed at $22.09 on Friday, and has risen 4.99% year to date.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.