Third-Quarter Dividend Champions
The life of a dividend-seeking investor may not seem easy, but corporate America is doing its best to make it easier for you.
As noted by Standard & Poor's, the second-quarter highlighted a continued trend of increased dividend payouts to shareholders. For the quarter, 444 of the 7000-plus publicly owned companies raised their dividends, as opposed to just 21 that reduced their payouts. Although the number of dividend-paying companies remained constant from the first quarter at 39.3%, yields were once again on the rise, hitting an average of 2.51%. Shareholders received what is essentially an 11% raise over last year based on reported payouts through the first half of 2011.
For those with a long-term investment horizon, the compounding growth that many of these dividend-paying stocks offer can truly be staggering. It's for that reason that every three months I pay credence to seven companies which have gone above and beyond the call of duty for their shareholders. Here are my seven third-quarter dividend champions.
Percentage Increase for Most Recent Dividend Hike
|Microsoft (NAS: MSFT)|
|Walgreen (NYS: WAG)|
|Accenture (NYS: ACN)|
|Viacom (NYS: VIA.B)|
|Cummins (NYS: CMI)|
|Amgen (NAS: AMGN)|
|Intuit (NAS: INTU)|
Source: Yahoo! Finance; * denotes implied figures for a dividend yet to be paid.
This impressive list of growth can essentially be broken down into three categories: the steady growers, the dramatic pops, and the up-and-comers.
The steady growers
- Microsoft: Steve Ballmer should consider himself lucky that shareholders haven't revolted considering that Microsoft's stock has been range-bound for a decade. The one aspect that keeps Microsoft on investors' radar has been its impressive dividend growth. During the third quarter, Microsoft announced its intentions to hike its quarterly payout to $0.20 from $0.16, which will be double what it was in 2007. Operating systems are clearly not as exciting of a business as they were 10 years ago, but Microsoft still holds a clear advantage over many of its competitors, as its roughly $38 billion in net cash proves. There's plenty of cash and steady enough growth in its core business to back future dividend increases.
- Walgreen: Like CVS Caremark, Walgreen shareholders have been feasting off of the scraps of Rite Aid for the past few years while the nation's third-largest drug store chain struggles to stay afloat. At Walgreen, conservative money management and an influx of new customers have allowed the company to grow its store count and its dividend very rapidly. Since 2006, Walgreen's payout has jumped a ridiculous 188% and over the past decade it has grown at 20.5% annually. That's a torrid pace for a company that's paid a dividend regularly for 78 years, but it shows no sign of slowing anytime soon.
The dramatic pops
- Accenture: Say goodbye to the 2009 lows and hello to the new bull market in the consulting business. During its fiscal fourth-quarter, Accenture noted a 25% jump in consulting revenue and a 21% jump in outsourcing revenue. For shareholders, these considerably better results over the year-ago period resulted in their getting a sizable 50% jump in the company's semi-annual dividend. Even with a payout ratio of 26%, Accenture's steadily growing margins and $5.7 billion in cash could pay huge rewards for shareholders down the road.
- Viacom: Who said broadcasting was dead? Certainly not Viacom or its CEO Philippe Dauman, who claimed in May that, "Viacom is in excellent shape financially and momentum across our businesses is strong." Perhaps that's been the main driver behind the 67% dividend increase, as well as the reinstatement of its share buyback program back in 2010. It could also be the fact that gross margins on the company's digital distribution deals are in excess of 75%. Either way, Viacom has shown that despite being a relative dividend-paying newbie, it's going to keep shareholder interests in mind.
- Cummins: Goods still need to get from point A to point B regardless of global economic conditions and Cummins, a supplier of diesel and heavy-duty engines, is proving that with each and every earnings report. During its most recent quarter, Cummins reported a 53% jump in engine sales and raised its pre-tax earnings forecast for the remainder of the year. Even more spectacularly, the company's 52% dividend hike now officially catapults its dividend by 344% over the past five years -- yet its payout ratio remains incredibly low at just 14%. Future dividend increases appear written in the cards with Cummins.
- Amgen: Amgen marked a major milestone this quarter by doing something most major biotechnology companies have never done: pay a regular dividend. After more than a decade of strong results, Amgen is looking to return roughly 20% of its earnings to investors each year in the form of a dividend. With future growth projections calling for Amgen to grow at 7% over the next five years, substantial room is left for this dividend to improve. This doesn't even speak to the company's $5.2 billion in net cash or the $5.3 billion in free cash flow it created over the trailing 12-months. There's safety in these numbers for income-seekers.
- Intuit: So I'm breaking the rules a bit here and jumping the gun on a dividend yet to be paid. Intuit, the name behind the greatest tax breakthrough since sliced bread known as TurboTax, announced in August its intention to pay its very first quarterly dividend of $0.15 in October. It's no secret that Intuit's software has taken off at the expense of traditional tax preparers H&R Block and the now private Jackson Hewitt. Intuit's implied yield won't be off the charts at 1.2%, but the company's projected five-year growth rate of 13.6% is enough to intrigue even the most skeptical of technology investors.
These seven companies offer everything a dividend-seeking investor could want: growth, value and most importantly, sustainability.
Editor's note: A previous version of this article said that tax preparer Jackson Hewitt is still in bankruptcy. We regret the error.
What dividend-paying companies have been showing you some love lately? Share them in the comments section below and consider adding these seven dividend champions to your watchlist to keep up on the latest news with each company.
- Add Microsoft to your watchlist
- Add Walgreen to your watchlist
- Add Accenture to your watchlist
- Add Viacom to your watchlist
- Add Cummins to your watchlist
- Add Amgen to your watchlist
- Add Intuit to your watchlist
At the time this article was published Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong. The Motley Fool owns shares of Microsoft. Motley Fool newsletter services have recommended buying shares of Microsoft, Cummins, and Accenture, as well as creating a bull call spread position in Microsoft. 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 that loves a dividend because it's cash, which is just as good as money!
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