5 Stocks Boosting Dividends by 20% or More
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According to S&P Dow Jones Indices data, some 935 companies boosted their dividend payouts in the first four months of 2013, 32% more than in the same quarter a year earlier. The tally for the first four months of this year was also the highest in at least a decade. This is a result of strong corporate cash flow generation that is allowing companies to return increasing amounts of cash to their shareholders.
Among the notable dividend growers is a group of companies that are raising dividends at double digits. Among them, only a few companies are increasing payouts by 20% or more, including a couple of asset managers, namely Invesco (NYSE: IVZ) and Lazard (NYSE: LAZ). Here is a closer look at these two and three other dividend-paying stocks yielding more than 2% and raising dividend payouts by 20% or more.
Invesco, an investment manager, recently boosted its quarterly payout to close to $0.23 per share. The dividend hike reflects the asset manager’s robust EPS growth over the past half-decade and the company’s assessment of a “strengthening trend of (its) business fundamentals.” Analysts expect solid EPS expansion for the next five years, with EPS growth averaging 15.3% annually. In the previous quarter, the company saw a 10.9% increase in net revenue from the year earlier, driven by solid growth in investment management fees. Its quarterly adjusted EPS was up 18.2% from the prior year.
Assets under management (AUM), which averaged nearly $713 billion in the quarter, were 8.3% higher year-over-year. Its AUM continued to expand in April. The stock offers capital appreciation potential based on its top line growth, which is bolstered by better performance and higher fee rates. However, some of that growth is already priced in, as the stock trades at 15.3x forward earnings, marginally below its peers as a group. In the December quarter, the stock was popular with hedge fund manager Richard S. Pzena.
Lazard, another asset manager, recently hiked its quarterly payout by $0.05 to $0.25 per share. The company’s financial performance lagged in the previous quarter, with its revenue and profits declining amid dismal financial advisory revenue. Aided by capital appreciation, Lazard’s AUM grew 10% year-over-year to $172 billion at the end of the March quarter. In its asset management business, Lazard derives nearly half of its AUM from clients based outside of North America.
The outlook for the company is optimistic, with the bottom line expected to benefit from the company’s cost cuts, an improving macroeconomic backdrop, and a revival in M&A activity. Bullish analysts forecast an EPS CAGR of 36% for the next five years. However, that growth seems pricey, as the stock is trading at 15x 2014 forward earnings. In the December quarter, activist investor Nelson Peltz reported a $167 million stake in the company’s stock. Peltz’s made this investment believing Lazard was undervalued and right on track with its strategic plan that included improving margins by 25% within two years and boosting shareholder value through dividends and buybacks.
Domtar (NYSE: UFS), North America’s largest manufacturer of uncoated freesheet paper, recently increased its quarterly dividend by $0.10 to $0.55 per share. The company started paying a dividend in the second quarter of 2010 and is now committed to “returning a majority of free cash flow to shareholders” via dividends and share buybacks. The company’s free cash flow generation has been strong, allowing for robust dividend growth. However, despite better paper pricing trends in the first quarter, the company’s profitability suffered due to low productivity that led to an increase in costs.
On the other hand, its personal care business continued to expand. The pulp market momentum, including moderately better pricing and steady shipments, is expected to continue in the near term. The company has been implementing strong share repurchases. At the end of the March quarter, it had $258 million remaining under its share repurchase authorization. Trading below the midpoint of its 52-week price range, Domtar is valued at only 11.9x forward earnings. Moreover, the stock is trading at a 10% discount to its book value. In the December quarter, Domtar was a holding in the portfolio of hedge fund manager Jeffrey Gates.
Sturm, Ruger & Company
Sturm, Ruger & Company (NYSE: RGR), a gunmaker, recently boosted its quarterly dividend to $0.49 per share. The company’s dividend varies each quarter because it is paid out as a percentage of earnings rather than a fixed amount per share. The latest dividend is about 40% of net income. The company reported record quarterly sales for the first quarter, as net sales surged nearly 39% from a year earlier. The demand was driven in part by fears that the introduced legislation would prohibit the manufacture of certain assault weapons and high-capacity guns. New product introductions gave an additional impetus to sales in the previous quarter.
Sales drove a 53% surge in earnings. These trends are likely to persist in the near-term, as firearm background checks in the first four months of this year continue to trend above last year’s levels, with the April 2013 tally some 27.2% above the April 2012 figure. In terms of valuation, Ruger is trading at 13.9x forward earnings, well above the forward multiple of 7.4x of its rival Smith & Wesson. Tiger Cub Chase Coleman and his co-portfolio manager Feroz Dewan held 800,000 shares of Ruger at the end of 2012.
Airgas (NYSE: ARG), an industrial and specialty gases supplier, recently hiked its quarterly dividend by $0.08 to $0.48 per share. Traditionally, the company has had a record of strong sales, cash flow, and earnings growth. However, its performance in fiscal 2013 was relatively modest, as it recorded organic sales growth of 3% and adjusted EPS growth of 6%. Its free cash flow growth was more robust, increasing by 14% for the fiscal year.
Airgas holds that “strong cash flow continues to be a hallmark of (its) business model.” The company is optimistic about its future, projecting fiscal 2014 adjusted EPS growth of between 15% and 23% from the prior year. Acceleration in economic activity expected for the second half of 2013 bodes well for Airgas’ demand.
The stock, however, is by no means cheap, as it trades at 22.2x trailing and 18.9x forward earnings. Its price-to-book is 4, some 38% higher than the five-year historical average of its price-to-book ratio. As regards hedge fund interest in Airgas, Robert Joseph Caruso was exceptionally bullish in the December quarter.
Though this list is by no means an adequate representation of the entire marketplace, it does indicate an important point that many investors miss: dividend stocks aren’t found in only one industry or sector. From specialty gas supplier Airgas, to asset managers Invesco and Lazard, each of the companies mentioned above may not have particularly mind-blowing growth or bargain basement multiples, but income-potential is enough to pull many investors. If forced to choose, Sturm, Ruger & Company and Domtar look like the best momentum plays of the bunch, as each should be driven by secular tailwinds going forward.
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This article is written by Serkan Unal and edited by Jake Mann. Insider Monkey's Editor-in-Chief is Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool owns shares of LAZARD Ltd. and Sturm, Ruger & Company. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!