A portion of my retirement planning includes dividend growth investments. Here are a few select companies that have recently followed through on their vision of providing increased cash dividends to their shareholders:

Flowers Foods (FLO) is one of the largest producers and marketers of bakery products in the United States. June 4th the company increased its quarterly dividend 14.3% to $0.20/share. The dividend is payable on July 2 to shareholders of record on June 18. The ex-dividend date is June 16. The yield based on the new payout is 3.22%.

Universal Health Realty (UHT) invests in healthcare and human service related facilities. June 4th the company raised its quarterly dividend to $0.605/share. The dividend is payable on June 30, 2010 to shareholders of record as of June 16, 2010. The ex-dividend date is June 14, 2010. UHT is a Dividend Achiever and has raised its dividend for 23 consecutive years. The yield based on the new payout is 7.59%.

Tri-Continental (TY) one of the largest publicly traded diversified U.S. closed-end funds. June 4th the fund increased its quarterly distribution 11% to $0.05/share. The dividend is payable on July 1 to shareholders of record on June 14. The ex-dividend date is June 10. The yield based on the new payout is 1.77%.

Communications Systems (JCS) provides modular connecting and wiring devices for voice and data communications and media and rate conversion products for telecommunications networks. June 7th the company raised its quarterly dividend 7% to $0.15/share. The dividend is payable on July 1 to shareholders of record on June 21. The ex-dividend date is June 17. The yield based on the new payout is 5.75%.

Caterpillar (CAT) is the the world’s largest producer of earth-moving equipment, is also a big maker of electric power generators and engines used in petroleum markets. June 9th the company increased its quarterly dividend to $0.44/share. The dividend is payable August 20, 2010, to stockholders of record at the close of business, July 20, 2010. The ex-dividend date is July 16. CAT is a Dividend Achiever and has raised its dividend for 17 consecutive years. The yield based on the new payout is 3.10%.

Target (TGT) operates about 1,490 Target and 250 SuperTarget general merchandise stores across the U.S. June 9th the company raised its quarterly dividend 47% to $0.25/share. The dividend is payable on September 10 to shareholders of record on August 20. The ex-dividend date is August 18. TGT is a Dividend Aristocrat and has raised its dividend for 43 consecutive years. The yield based on the new payout is 1.90%.

American Eagle (AEO) is a specialty retailer of casual apparel, accessories and footwear primarily for young men and women between the ages of 15 and 25. June 9th the company increased its quarterly dividend 10% to $0.11/share. The dividend is payable on July 9, 2010 to stockholders of record at the close of business on June 28, 2010. The ex-dividend date is June 24. The yield based on the new payout is 3.60%.

Del Monte (DLM) is one of the largest producers, distributors and marketers of premium quality, branded food and pet products for the U.S. retail market. Also produces private label food and pet products. June 10th the company raised its quarterly dividend 80% to $0.09/share. The yield based on the new payout is 2.29%.

National Fuel Gas (NFG) is an integrated energy company with six operating segments: utility, pipeline & storage, exploration & production, international, energy marketing, and timber. June 10th the company raised its quarterly dividend 3% to $0.345/share. The dividend is payable on July 15 to shareholders of record on June 30. The ex-dividend date is June 28. NFG is a Dividend Champion and has raised its dividend for 40 consecutive years. The yield based on the new payout is 2.80%.

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.

Related Posts
- How To Buy Dividend Stocks At The Bottom
- 7 Dividend Stocks To Take The Emotion Out Of Investing
- The Next Great Company
- Increasing Dividend Yield Part III: Preferred Stock
- 10 Dividend Stocks With Above Target Returns

(Photo Credit)

Despite what the mainstream media would lead you to believe, the U.S. manufacturing sector has not slipped behind all other industrialized nations in the world. Michael Brush in a recent MSN article points out that the U.S. is still far and away the largest manufacturer in the world.  Below are some interesting highlights from the article:

• U.S. workers produce 21% of all factory goods made globally, or about $1.7 trillion worth per year
• China is the second-biggest global producer, but doesn’t even come close at 13%
• During the previous economic boom, manufacturing contributed more to U.S. growth than any other sector
• States with the most factory jobs are California, Texas and New York
• Big export categories ($1.3 trillion last year) are heavy-construction equipment, turbines, locomotives, nuclear reactors, aircraft and aerospace equipment.

According to the U.S. Department of Commerce, the largest export markets for U.S. goods in 2008 (with percent increase over 2007) were Canada ($261.4 billion, up 5.0%), Mexico ($151.5 billion, up 11.4%), China ($71.5 billion, up 9.5%), Japan ($66.6 billion, up 6.2%), and Germany ($54.7 billion, up 10.2%). Consider these three prominent U.S. manufacturers:

Boeing (BA) – Yield: 3.77%
BA is the U.S.’s largest exporter, largest aircraft producer in the world and the second-largest aerospace and defense contractor. The company produces civilian planes, military jets, helicopters, missiles, satellites and other aerospace equipment and employs around 135,000 people employed throughout the U.S.

Nucor Corp (NUE) – Yield: 3.35% – Analysis
NUE is one of the few steel companies in the U.S. to remain competitive in its industry. It has streamlined and decentralized its management, and is on the leading edge when it comes to employee relations and their productivity.

Caterpillar Inc. (CAT) – Yield: 4.46% – Analysis
Eventhough CAT has foreign manufacturing facilities, much of the company’s equipment is still made in the U.S. While the U.S. economy sputtered in 2008, CAT’s exports from U.S. plants topped $16 billion, up from $12.6 billion billion dollars in 2007. CAT employs 53,000 people in 28 states.

The U.S. economy is still the largest in the world. At $46,000 per person in 2008, the GDP per capita, ranks around number ten in the world and the U.S. economy has enjoyed a stable overall GDP growth rate and a low unemployment rate over the years. Gloom and doom may sell papers and boost ratings, but when it is put in perspective, it is usually not nearly as bad as was originally presented.

Full Disclosure: Long WMT, MCD. See a list of all my income holdings here.

CAT’s global machinery sales fell 27 percent in February, the third straight month of declines as the economic downturn eroded demand for heavy equipment. In an effort to align sales and production with plummeting demand, CAT notified an additional 2,454 workers in three states that they were losing their jobs. CAT was already feeling the cash squeeze.

A line worker at NUE’s plant in Darlington, S.C. sent John J. Ferriola, the company’s chief operating officer, a note that simply said “Thank you for caring about me and my family.” NUE’s top management have received hundreds of similar cards and e-mails from their staff of 22,000.  If you think this is different and somewhat odd, it is for other companies, but not NUE.

NUE is one of the few remaining steel companies in the U.S. to remain competitive in its industry. It has streamlined and decentralized its management. There are only four layers of management. Senior executives do not have company cars, dining rooms, executive parking spaces or corporate jets. Everyone from the janitors to the CEO has the same basic but generous benefits plan.  NUE’s employee relations philosophy is simple and effective:

• Employees should have the opportunity to earn according their productivity.
• If employees do their job well today, they should have a job tomorrow.
• Employees have a right to be treated fairly. The company listens to employees through crew meetings, department meetings, shop dinners and employee surveys.
• Employees must have an avenue of appeal if they believe they have been treated unfairly. This complaint procedure allows employees to carry their complaints to the President of the company.

NUE backs up its philosophy with a unique pay-for-performance compensation system. Employees earn money based on their individual productivity. While employees are paid a lower than industry average hourly rate, they qualify for an exceptional performance bonus if they exceed hourly quotas. Employees see a direct correlation between what they do and their paychecks a major incentive, and a key strength of the program. In fact, this program prompts such high performance that employees were refusing to take time off so the company had to begin forcing them to take time off.

As a result of the downturn, NUE is keeping employees busy rewriting safety manuals, looking for cost savings, and getting ahead on maintenance. Work that used to be done by contractors, such as making special parts, mowing the lawns, and even cleaning the bathrooms, is now handled by NUE staff. Cleaning the bathrooms was an employee suggestion.

You can’t beat the herd by following the herd. For better or worse, NUE has chosen the high-road with its employees. I suspect NUE is equally thoughtful toward its shareholders. Last month I sold CAT, but I am still proud to be a NUE shareholder.

Full Disclosure: Long NUE

References:
- How Nucor Steel Rewards Performance and Productivity
- Pain, But No Layoffs at Nucor

I. Change In Business Conditions

An abrupt or permanent shift in a company’s business model as a result of business conditions could lead to a dividend cut. Over the last 18 months or so, virtually all businesses have experienced an adverse change in business conditions.  However, the pertinent question is to what degree?

Consider Gannett Co. (GCI) who publishes 90 daily U.S. newspapers, nearly 1,000 non-daily publications in the U.S., and close to 300 U.K. titles. With the mass adoption of the internet, traditional news outlets such as newspapers are experiencing a slow death. GCI cut its dividend earlier this year after several years of declining earnings.

Pfizer’s (PFE) recent dividend cut would fall in this category. After years of unsuccessful attempts to get approval of a “blockbuster” drug, the cash rich company sought a merger partner with a good drug pipeline. In anticipation of it proposed combination with Wyeth, PFE cut its dividend.

II. Dividend Yield Above Historic and Industry Norms

A dividend yield that is higher than average and/or higher than others in the industry are indications, not all is well with the company. The market is adjusting to compensate for the higher risk of holding the company.  When dividend yields start creeping up, it is time to start evaluating if the company can continue to pay its dividend.

Consider Bank of America Corp. (BAC). Between 2000 and 2007 the company’s dividend yield hovered in the 3%-4% range. In 2008, the dividend yield ranged from around 5% to the teens prior to its dividend cut.  The same situation occurred with General Electric (GE) over the same period. GE’s dividend yield from 2000-2007 normally were in the range of 1.5%-3.5%. However, in 2008 they the dividend yield than doubled as investors lost confidence in the company. Eventually, BAC and GE cut their dividends.

III. Diminishing Cash Available to Pay Dividends

Ultimately, the ability of a company to pay its dividend is determined by its cash position – both cash on its balance sheet and its ability to generate cash flow.  All the companies above had one thing in common – a deterioration of cash flow available for paying dividends.

After GCI’s free cash flow peaked in 2004 at $1.3 billion, it slipped over the next four years to $852 million in 2008. Though GE’s free cash flow was increasing, the company was taking on significant debt. GE’s debt increased from  $201 billion in 2000 to $524 billion in 2008 and it could no longer afford its dividend.

A Look Ahead

Unfortunately, there will be more dividend cuts in the coming days. Two companies currently on my radar are Nucor Corp. (NUE) and Caterpillar Inc. (CAT).

On March 17th, NUE warned of a first quarter loss as the slumping economy sapped demand for the metal forcing it to cut output. “The economy has fallen off a cliff — and there is no visibility as to the timing of the recovery,” Nucor Chairman, Chief Executive and President Dan DiMicco said in a statement.  NUE’s free cash flows through 2008 had been strong and it ended 2008 with $920 million net debt (debt less cash) vs. $879 million in 2007. NUE is ok for now, but I look forward to reading their Q1 earnings release.

Last week CAT announced that its global machinery sales fell 27 percent in February, the third straight month of declines as the economic downturn has eroded demand for heavy equipment. In a separate announcement the company said it had notified an additional 2,454 workers in three states that they were losing their jobs as the company continues to try to bring production in line with plummeting demand. CAT’s financial position is not as strong as NUE. Its free cash flow in 2008 was less than half of 2007 and it ended 2008 with no cash and $33 billion in debt vs. $27 billion net debt in 2007. This is another quarterly earnings release that I look forward to reading.

The above three items will help you determine which companies are at risk of cutting their dividends. Cash is king, so pay special attention to free cash flows and debt levels.

Full Disclosure: Long CAT and NUE.

(Photo Credit)

S&P 500 Dividend Aristocrats is designed to measure the performance of S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. The constituents are equally weighted and rebalanced each quarter. Members are removed during the December update if calendar-year dividends did not increase from the previous year, or they are removed intra-year if the stock is dropped from the underlying S&P 500.

Dividend investors have a lot to be thankful for. The 60 companies making up the Dividend Aristocrats have outperformed the S&P 500 index year-to-date by almost 12 percentage points.

SmartMoney recently published a dividend growth stock screen with the following criteria:

• Past year dividend growth greater than 10%
• Ten-year average dividend growth greater than 10%
• Price/free-cash-flow ratio below 20
• Dividend yield greater than 3%

That screen produced the following 6 stocks:

• Caterpillar (CAT) – 4.64% current yield – Last reviewed: 9-10-2008
• Darden Restaurants (DRI) – 4.84% current yield – Last reviewed: n/a
• Garmin Ltd. (GRMN) – 4.32% current yield – Last reviewed: n/a
• Intel (INTC) – 4.27% current yield – Last reviewed: 10-6-2008
• Pfizer (PFE) – 7.86% current yield – Last reviewed: 3-17-2008
• Black & Decker (BDK) – 4.24% yield – Last reviewed: n/a

Of the stocks that I have reviewed, I currently rate:

• CAT as a 4 Star-Buy with a buy below price of $43.22
• INTC as a 4 Star-Buy with a buy below price of $21.21
• PFE as a 3 Star-Hold with a buy below price of $27.72

After running the remaining 3 companies through my D4L-PreScreen.xls model, BDK with a NPV of MMA Differential of $49,200 qualifies for a more complete evaluation. However, since it is time for a dividend increase and BDK has only increased its dividend for 5 consecutive years, I would wait to see what the company does prior to performing a full evaluation. DRI has only seriously raised their dividend for the last 3 years. GRMN has only paid a dividend (annual) since 2003.

As always, you should never act solely on a screen or recommendation. You should perform your own research and reach your own conclusion before buying or selling an investment security.

Sources:
S&P 500 Dividend Aristocrats
6 Stocks With Improving Dividends

Full Disclosure: At the time of this writing, I was long in CAT, INTC, PFE

Caterpillar Inc. (CAT)
Last Reviewed: 9/10/2008
Previous Rating: 2 Star-Weak
Current Rating: 4 Star-Buy
Buy Below Price: $43.22
Current Price: $40.90

Chevron Corporation (CVX)
Last Reviewed: 8/20/2008
Previous Rating: 2 Star-Weak
Current Rating: 3 Star-Hold
Buy Below Price: $72.91
Current Price: $69.61

Johnson Controls (JCI)
Last Reviewed: 9/23/2008
Previous Rating: 0 Star-Avoid
Current Rating: 3 Star-Hold
Buy Below Price: $23.84
Current Price: $18.92

Integrys Energy Group (TEG)
Last Reviewed: 9/3/2008
Previous Rating: 3 Star-Hold
Current Rating: 4 Star-Buy
Buy Below Price: $49.95
Current Price: $46.78

Keep in mind, there are a lot of stocks out there that are still overvalued. If the downturn continues, we may gain access to them. As always, you should do your own research and reach your own conclusion before buying or selling any security.

Disclosure: No position in the aforementioned stocks.

Company Description: Caterpillar Inc. is the world’s largest producer of earthmoving equipment, is also a big maker of electric power generators and engines used in petroleum markets.

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

CAT is trading at a discount to 1.), 2.) and 3.) above. If I exclude the high and low valuations and average the remaining two, CAT is trading at a 17.1% discount. CAT 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.

CAT earned one Star in this section for 3.) above. CAT has paid a cash dividend to shareholders every year since 1933 and has increased its dividend payments for 15 consecutive years.

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

CAT earned no Stars in this section. The NPV MMA Diff. of the $1,794 is below the $7,500 minimum I look for in a stock that has increased dividends as long as CAT has. If CAT grows its dividend at 9.9% per year, it will take 11 years to equal the cumulative earnings from a MMA yielding an estimated 20-year average rate of 4.61%. The 11 years is more than the 10 years maximum I like to see.

Other: CAT is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index. CAT’s construction equipment and engine businesses are highly cyclical nature. Through 2009, CAT’s EPS growth will likely decelerate with an outlook for ongoing softness in the U.S. economy and moderating trends in Europe. This will likely continue in the near-term.

Conclusion: CAT earned one Star in the Fair Value section, earned one Star in the Dividend Analytical Data section and did not earn any Stars in the Dividend Income vs. MMA section for a net total of two Stars. This quantitatively ranks CAT as a 2 Star-Weak stock.

Using my D4L-PreScreen.xls model, I determined the share price would have to drop to $43.22 before CAT’s NPV MMA Diff. decreases to the $7,500 NPV MMA Diff. that I like to see. At that price CAT would yield 3.61%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the $7,500 NPV MMA Differential I’m looking for, the calculated rate is 13.4%. This rate may not be unreasonable. By default my model takes a conservative position in using the minimum of the 1, 3, 5, 7 or 10 year compound annual growth rate; or 15% in certain circumstances. In CAT’s case the 9.9% used was the 10-year compound annual growth rate, which is heavily skewed by the earlier years (2000-2003) when CAT’s growth rate was between 1.4% and 6.4%. Over the last 6 years the average dividend increase has been 17.1, well in excess of the needed 13.4%.

I would not automatically dismiss CAT based on the historic quantitative data. It is certainty worth being added to my watch list.

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 had no position in CAT (0.0% of my Income Portfolio) .

What are your thoughts on CAT?