Large Retailers Increasing Dividends
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The Standard and Poor’s High Dividend Aristocrats index compiles 60 of the highest dividend yielding stocks within the entire S&P which have a consistent record of increasing their distributions to shareholders over the last quarter of century. Only regular dividends, not special payouts, are considered for eligibility into this elite group of dividend paying stocks. With a heavily sentiment driven market, dividend cuts, as a result, normally have detrimental consequences on the demand for shares, such as the case with GE when management sliced the payout from $0.31 to $0.10 amidst the financial crises.
Oftentimes, companies which offer dividend growth are not found in the high growth tech sectors, but are hiding in somewhat less attractive areas such as discount and home improvement retailers. Tech companies with high growth opportunities typically invest into themselves as breakthrough products are what drive company stock returns. Retailers, on the other hand, do not have to fund expensive R&D projects, allowing them to payout dividends to shareholders on an ongoing basis as long as they are profitable.
Wal-mart (NYSE: WMT), the largest retail giant operating in this space, yields an impressive 2.45%, paying shareholders $1.46 per year. The latest dividend hike was a staggering 20.6% based on the company’s solid cash flow generating abilities; with around 9,000 locations in 15 countries, Wal-mart generated $419 billion in sales in fiscal 2011. Since Wal-mart shares have shown little appreciation over the last several years, its payout attracts investors to the otherwise lackluster shares. Target (NYSE: TGT), Wal-Mart’s largest North American competitor does not only vie for customers, but for investors as well. With investors’ pessimism about Target’s performance, driving its stock price to an 18 month low in the summer, Target raised its dividend by 20%. However, this action failed to cause a rally in the shares that management had hoped for despite the 2.41% yield.
Multichannel consumer goods and drug store operator, Walgreens (NYSE: WAG) also finds itself on the high yield dividend list. Operating a different concept store than Wal-Mart and Target has not pushed Walgreen share price in a different direction than the two major retailers. Shares are down 30% over the last 5 years on poor performance, recently driven by a contract loss with Express Scripts. Walgreens has adopted a similar strategy of upping dividends to maintain the interest of investors. The drugstore pushed with its largest dividend hike in 110 years, raising its yield by 28.6% and authorizing a $2 billion share repurchase program. Currently, Walgreens yields 2.76%.
Lowe’s (NYSE: LOW) and Home Depot (NYSE: HD) yield 2.15% and 2.67%, respectively. Despite that Lowe’s yields less than its home improvement competitor, Home Depot does not appear on the list of the S&P High Dividend Aristocrats. With the slow rebound of the housing market, however, Lowe’s and Home Depot have performed rather well, outperforming the aforementioned corporations in addition to also offering investors increasing income streams. Home Depot announced that quarterly dividends will be increased by 16% as diluted earnings per share grew by 18% in the last reported quarter. Likewise, Lowe’s hiked its dividend payment by an impressive 27% several months ago, raising the quarterly payout to 14 cents – Lowe’s has a 50 year history of paying dividend without interruption.
A stable history of dividend payments offers investors protection against inflation and a greatly desirable income stream. The S&P High Dividend Aristocrats are among the most stable income generators in the market and are unlikely to stop paying dividends, even when times get tough.
The Motley Fool owns shares of Wal-Mart Stores. apinkasovitch has no positions in the stocks mentioned above. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.