5 Stocks Raising Dividends by Double-Digit Rates

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According to S&P Dow Jones Indices data, the number of dividend increases was up 16.3% in May and 29.1% in the first five months of this year compared to the same periods a year earlier. Among the notable dividend growers are several companies that are boosting their payouts by double-digit rates.

Recently, the list of dividend growers with double-digit dividend increases included a few dividend growers with long streaks of dividend raises, including S&P Dividend Aristocrats Target (NYSE: TGT) and Lowe’s (NYSE: LOW). Here is a closer look at these two and three other recent double-digit dividend hikes.

Target

Target, the second-largest discount retailer in the United States, recently declared a 7-cent increase to its dividend, boosting the quarterly payout to 43 cents per share. With the latest dividend hike, the stock is yielding 2.5% on a payout ratio of 39% of analysts’ current-year consensus EPS estimate. At the end of May, the company reported comparable-store sales down 0.6% year-over-year in its fiscal first quarter, while EPS was down 5%. These disappointing results reflected weak sales of apparel and other seasonal and weather-sensitive products.

The company has also lowered its adjusted EPS guidance for full-year 2013 from prior guidance of $4.85-$5.05 to $4.70-$4.90. The company’s historical growth record in the United States has been a result of robust consumer spending, a success that Target is expecting to accomplish with its international expansion into Canada, where it has opened its first 24 stores in the first quarter.

With plans to open 200 new stores in Canada over the next decade, Target will continue to pursue its objective of reaching $100 billion in sales and $8.00 in EPS by 2017 (For reference, the company achieved $73 billion in sales in 2012). Initial reports suggest that Canadian sales have been robust, with particularly strong sales of home and apparel products.

Lowe’s

Lowe’s was another S&P Dividend Aristocrat with a double-digit increase in its dividend. The company hiked its quarterly payout by 2 cents to 18 cents per share, a 12.5% increase compared to the previous quarterly dividend rate. The company has suffered weak same-store sales in the first quarter, mainly due to cold weather that hurt sales of seasonal items. However, its relative sales weakness is not a new development, as Lowe’s Companies has had 16 consecutive quarters of weaker same-store sales than its arch-rival Home Depot.

Still, given the strength in the housing market, sales to contractors have been particularly strong. The company has also increased its online offering in a sales push. As the same-store sales in the second quarter recover from the colder-than-usual weather in the quarter before—a 10% sales gain in April suggests a rebound—the company reiterates its goal of achieving same-store sales growth of 3.5% this year, with a 4% year-over-year gain in total revenues in 2013. Analysts are generally bullish about the company’s long-term EPS growth, forecasting a 17.3% EPS CAGR for the next five years. Interestingly, Lowe’s Companies has supported its EPS growth through strong share buybacks, and this trend will continue, as the company has authorized $5 billion in share repurchases through 2015. The company is currently yielding 1.7% on a payout ratio of 35% of analysts’ current-year consensus EPS estimate.

Caterpillar

Caterpillar (NYSE: CAT) recently declared a 15.4% increase in its quarterly dividend, raising it by 8 cents to 60 cents per share. As a result, the company is now yielding 2.8% on a payout ratio of 35% of analysts’ current-year consensus EPS estimate. This increase augments Caterpillar’s shareholder-friendly capital deployment through an earlier decision to resume share buybacks as of the second quarter of 2013 with $1 billion in accelerated share repurchases.

The higher shareholder allocations are a result of the company’s strong cash flow generation. Still, Caterpillar’s operational performance has been significantly weak. Its first-quarter total sales and revenues were down 17% year-over-year and profit per diluted share was down 45% from the previous year. The dismal performance was a result of a challenging global environment and negative inventory developments, coupled with moderating end-user demand. The company has also lowered its outlook for full-year financial results, citing a particularly weak mining segment performance, which has been hurt by soft commodity markets.

Still, in April, the company’s year-over-year global sales declines moderated in most markets, except for North America, while sales were particularly robust in Latin America. Continued emerging market urbanization and North American construction machinery replacement demand should help performance this year, according to S&P analysts.

International Game Technology

International Game Technology (NYSE: IGT), a provider of interactive casino games, recently boosted its quarterly dividend by 1 cent to 9 cents per share. This was the company’s third dividend increase over the past year, with the new payout 50% higher than that paid in the same quarter last year. IGT has paid dividends for 41 consecutive quarters, which is the longest streak in its peer group. With the latest payout hike, the stock is yielding 2.1% on a payout ratio of 27% of analysts’ current-year consensus EPS estimate.

IGT is seeing revenue momentum, with an 11% increase in revenue in the previous quarter. This year will likely mark the company’s fourth consecutive year of double-digit growth in adjusted EPS from continuing operations. In the firm’s fiscal second quarter, that indicator of profitability was up 33% year-over-year. Particularly robust has been the sales performance of social gaming, which saw a 349% increase in the six months ended March 31 from the same period a year earlier.

The company’s robust performance has been supported by its DoubleDown Casino, the world’s largest free-to-play, social casino with 5 million monthly social gamers, which became part of IGT following the acquisition of Double Down Interactive LLC in 2012. This summer, DoubleDown Casino will be expanding its reach through PlayPhone’s global mobile social gaming network.

DuPont Fabros

DuPont Fabros (NYSE: DFT), a wholesale data centers REIT, recently declared a higher quarterly dividend, raising its payout by 5 cents to 25 cents per share, a 25% increase from the previous quarterly dividend and nearly 67% higher than the quarterly payout in the same period a year ago. With the latest increase, the REIT’s dividend is yielding 4.2% on a payout ratio of 53% of the company’s 2013 FFO guidance midpoint.

The company’s operating strategy has been focused on “constructing large-scale wholesale data centers in Tier 1 markets, leasing up and operating data centers, and maintaining strong balance sheet.” Its performance is supported by solid data center macro fundamentals, characterized by the rise of social media, mobile applications, gaming, and cloud computing, among other things.

The REIT has wholesale large tenants with long-term leases that usually stretch over 10 years. In the previous quarter, DuPont Fabros reported adjusted FFO that was 23% higher than a year ago, with the company’s operating portfolio 90% leased. The company’s positive momentum should continue this year, as DuPont Fabros propped up its full-year 2013 guidance.

Final thoughts

Individually, each of the five aforementioned companies may not seem special, but as a unit, they provide any investor solid exposure to dividend paying companies that are being more generous with their pocketbooks of late. From DuPont Fabros’ REIT adventures to International Game Technology’s intriguing outlook, we’d pay close attention to the stocks mentioned above. Caterpillar and Lowe’s give added exposure to a recovering economy, while Target’s lofty sales goals give something else to look forward to. Continue learning about Insider Monkey’s newsletter here.

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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 recommends Lowe's. 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!

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