This week several companies provided their shareholders positive feedback with increased cash dividends:

Casey’s (CASY) has over 1,500 convenience stores in the Midwest, selling food, beverage, health and automotive products. September 7th the company increased its quarterly dividend 35% to $0.135/share. CASY is a Dividend Achiever and has raised its dividend for 11 consecutive years. The yield based on the new payout is 1.26%.

R.G. Barry Corporation (DFZ) designs, purchases from third party contract manufacturers, markets and distributes comfort footwear for men, women and children. September 7th the company raised its quarterly dividend 40% to $0.07/share. The dividend is payable October 4, 2010 to common shareholders of record on September 20, 2010. The ex-dividend date is September 16, 2010. The yield based on the new payout is 2.46%.

Frisch’s Restaurants (FRS) operates 91 family restaurants under the name Frisch’s Big Boy, and operates 35 Golden Corral grill buffet restaurants. September 8th the company raised its quarterly dividend 15% to $0.15/share. The dividend is payable October 8, 2010 to shareholders of record at the close of business on September 20, 2010. The ex-dividend date is September 16, 2010. The yield based on the new payout is 3.03%.

Flexsteel Industries (FLXS) manufactures, imports, and markets residential, recreational vehicle, and commercial upholstered and wooden furniture products in the United States. September 9th the company increased its quarterly dividend 50% to $0.075/share. The dividend is payable October 1, 2010 to shareholders of record as of September 20, 2010. The ex-dividend date is September 16, 2010. The yield based on the new payout is 2.08%.

Brady Corp (BRC) is an international manufacturer and marketer of solutions that identify and protect premises, products and people. September 9th the company raised its quarterly dividend 2.9% to $0.18/share. A quarterly dividend will be paid on October 29, 2010, to shareholders of record at the close of business on October 8, 2010. BRC is a Dividend Achiever and has raised its dividend for 25 consecutive years. The yield based on the new payout is 2.64%.

Selecting stocks with increasing dividends is critical for an income growth strategy. The above list contains stocks that recently raised their dividends; it is not a list of recommend buys. As always, due diligence should be performed before buying or selling any stock. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.

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(Photo Credit)

Below are several companies rewarding their shareholders with higher cash dividends:

Brady Corp. (BRC) is an international manufacturer and marketer of solutions that identify and protect premises, products and people. Products include labels and signs, safety devices, printing systems and software, and precision die-cut materials. Recently, the company increased its quarterly dividend 2.9% to $0.17/share. The dividend will be paid on October 30, 2009, to shareholders of record at the close of business on October 9, 2009. BRC is a Dividend Achiever and has increased its dividend for 24 consecutive years. The current yield based on the new dividend is 2.33%.

Village Super Market (VLGEA) operates a chain of 23 ShopRite supermarkets in New Jersey and Pennsylvania. This past week, the company raised its dividend 7% to $0.23/share. The dividend is payable on October 22, 2009 to shareholders of record at the close of business on October 1, 2009. The ex-dividend date is September 29th. The current yield based on the new dividend is 3.14%.

Agree Realty (ADC) is a real estate investment trust that engages in the development, acquisition, and management of retail properties leased to national and regional retail companies in the U.S. Monday, the company bumped its quarterly dividend 2% to $0.51/share. The dividend is payable October 15, 2009 to shareholders of record at the close of business on September 30, 2009. The current yield based on the new dividend is 8.59%.

Philip Morris Int’l (PM) increased its quarterly dividend 7% to $0.58/share. The current yield based on the new dividend is 4.88%.

Kroger (KR) a supermarket operator, with about 2,500 stores in 31 states, also operates convenience stores, jewelry stores, supermarket fuel centers, and food processing plants. Thursday, the company raised its quarterly dividend 5.5% to $0.095/share. The dividend will be paid on December 1, 2009 to shareholders of record as of the close of business on November 16, 2009. The current yield based on the new dividend is 1.83%.

W. P. Carey (WPC) owns and manages a diversified portfolio of net leased corporate real estate. Yesterday, the company raised its quarterly dividend to $0.50/share. This is the company’s 34th consecutive distribution increase. The current yield based on the new dividend is 7.01%.

Corporate Office Properties (OFC) owns, manages, leases, acquires and develops suburban office properties located in Mid-Atlantic region of the U.S. and other select markets. Thursday the company bumped its quarterly dividend 5.4% to $0.3925/share. The dividend will be paid on October 15, 2009 to shareholders of record on September 30, 2009. OFC is a Dividend Achiever and has increased its dividend for 12 consecutive years. The current yield based on the new dividend is 4.10%.

Texas Instruments (TXN) is one of the world’s largest manufacturers of semiconductors, and also produces hand-held graphing and scientific calculator products. The company yesterday increased its quarterly dividend 9% $0.12/share. The dividend will be payable November 16, 2009, to stockholders of record on October 30, 2009. The current yield based on the new dividend is 2.03%.

NYMAGIC, INC. (NYM) specializes in ocean marine, inland marine and non-marine liability insurance. Thursday, the company increased its dividend to $0.06/share. The dividend is payable on October 6, 2009 to shareholders of record on September 30, 2009. The current yield based on the new dividend is 1.44%.

This year many companies have increased their dividends and there will be more to do so before the year end. For stocks with a long string of consecutive dividend increases, see this list.

Full Disclosure: No position in the aforementioned securities. See a list of all my income holdings here.

(Photo Credit)

Traditionally, this is calculated as Annual Dividend Per Share divided by Earnings Per Share (EPS).  I don’t particularly care for this calculation. Due to all the odd accounting rules EPS is not cash. Instead, I prefer to use a Free Cash Flow Payout Ratio.

Free Cash Flow has several different definitions, but  the one I use is Operating Cash Flow less Capital Expenditures.  Both of these amounts are found on the statement of cash flows. Operating cash flow starts with Net Earnings and adjusts out non-cash items, such as depreciation and amortization, and non-operating items such as land sales.

Since a business can’t continue in the long-term without capital spending (machinery and equipment, etc.), capital expenditures are subtracted from operating cash flow in calculating free cash flow.  It is important to note, that only “normal” capital expenditures are deducted, not acquisitions. The decision to make an acquisition is strategic, not operating.

Once calculated, Free Cash Flow is divided by diluted shares to put it on a per share basis. Finally, the annual dividend per share is divided by free cash flow per share to calculate the payout ratio. With the traditional EPS based payout ratio, many people consider 50% or below good. However, since a lot of the noise has been removed when using free cash flow, I consider a payout ratio of 60% or lower good.

The lower the payout ratio the more cash is available to increase the company’s dividend. A low ratio is especially good during an economic downturn, when the amount of cash generated will likely be less.

Here are five stocks with a free cash flow payout ratio less than 30%:

1. AFLAC Inc (AFL)
Payout Ratio: 10.8% – Yield: 3.30% – Analysis

2. Nucor Corp (NUE)
Payout Ratio: 29.0% – Yield: 2.90% – Analysis

3. United Technologies Corp. (UTX)
Payout Ratio: 29.8% – Yield: 2.70% – Analysis

4. Lowe’s Companies Inc. (LOW)
Payout Ratio: 23.4% – Yield: 1.80% – Analysis

5. Brady Corp. (BRC)
Payout Ratio: 26.8% – Yield: 2.70% – Analysis

I am currently reworking my dividend analysis worksheets to focus on what’s most important in selecting a dividend stock. A Free Cash Flow dividend payout of less than 60%, will earn the company a star.

Full Disclosure: Long AFL, NUE, UTX. See a list of all my income holdings here.

(Photo: Steve Woods)

Linked here is a detailed quantitative analysis of Brady Corp (BRC). Below are some highlights from the above linked analysis:

Company Description: Brady Corp is an international manufacturer and marketer of solutions that identify and protect premises, products and people. Products include labels and signs, safety devices, printing systems and software, and precision die-cut materials.

Fair Value: I consider four calculations of fair value, see page 2 of the linked PDF for a detailed description:

1. Avg. High Yield Price
2. 20-Year DCF Price
3. Avg. P/E Price
4. Graham Number

BRC is trading at a discount to 1.), 2.) and 3.) above. If I exclude the high and low valuations and average the remaining two, BRC is trading at a 29.6% discount. BRC earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section I consider five factors, see page 2 of the linked PDF for a detailed description:

1. Rolling 4-yr Div. > 15%
2. Dividend Growth Rate
3. Years of Div. Growth
4. 1-Yr. > 5-Yr Growth
5. Payout 15% of avg.

BRC earned two Stars in this section for 3.) and 4.) above. BRC has paid a cash dividend to shareholders every year since 1984 and has increased its dividend payments for 24 consecutive years. Its one year dividend growth rate exceeded its 5-year growth rate. This could indicate the growth rate is accelerating.

Dividend Income vs. MMA: Why would you assume the equity risk and invest in a dividend stock if you could earn a better return in a much less risky money market account (MMA)? This section compares the earning ability of this stock with a high yield MMA. Two items are considered in this section, see page 2 of the linked PDF for a detailed description:

1. NPV MMA Diff.
2. Years to > MMA

BRC earned one Star in this section for 2.) above. The NPV MMA Diff. of the $4,388 is below the $7,500 minimum I look for in a stock that has increased dividends as long as BRC has. If BRC grows its dividend at 7.6% per year, it will take 4 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 3.64%. BRC earned a Star since its Years to >MMA of 4 is less than 5 years.

Other: BRC is a member of the Broad Dividend Achievers™ Index. In response to the global recession, BRC announced in November 2008 several initiatives to right-size their business and manage costs. Planned actions include a 10% reduction in the a global workforce, a company-wide salary freeze, continued reduction of discretionary spending and contingency plans for additional reductions in the event of more severe business downturn. BRC estimates approximately $30 million pretax of restructuring charges in fiscal 2009.

Conclusion: BRC earned one Star in the Fair Value section, earned two Stars in the Dividend Analytical Data section and earned one Star in the Dividend Income vs. MMA section for a net total of four Stars. This quantitatively ranks BRC as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price could increase to $23.07 before BRC’s NPV MMA Differential fell to the $3,280 that I like to see for a stock with 24 consecutive years of dividend increases. At that price the stock would yield 2.95%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the needed $3,280 NPV MMA Differential, the calculated rate is 6.6%. This dividend growth rate is below the 7.6% used in this analysis, thus providing a margin of safety. BRC has a risk rating of 1.50 which classifies it as a low risk stock.

BRC was a peasant surprise.  With a 27% free cash flow payout ratio and a 36% debt to total capital, BRC’s dividend should be  sustainable in the near-term. The company’s management has shown itself to be proactive in planning for the economic downturn. BRC is a company I would give serious consideration to below my $23.07 buy price. For additional information, including the stock’s dividend history, please refer to its data page.

Disclaimer: Material presented here is for informational purposes only. The above quantitative stock analysis, including the Star rating, is mechanically calculated and is based on historical information. The analysis assumes the stock will perform in the future as it has in the past. This is generally never true. Before buying or selling any stock you should do your own research and reach your own conclusion. See my Disclaimer for more information.

Full Disclosure: At the time of this writing, I held no position in BRC (0.0% of my Income Portfolio).

What are your thoughts on BRC?

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