Dividends Value » FDO

1 Company Announced A Higher Dividend, 7 To Pay Higher Dividends in April *

D4L — Fri, 01 Apr 2011 07:30:11 +0000

A stock with a high yield doesn’t mean much if the dividend is cut or eliminated, and the stock price declines significantly. Sometimes it is desirable to accept higher risk for a higher yield. Other times we may be accepting higher risk and are not being adequately compensated for the additional risk. One measure of dividend sustainability is the ability of management to consistently raise their dividends each year.

This week only one company announced raised the dividend growth bar one year by increasing its cash dividends paid:

International Paper (IP) is a global paper and packaging company with manufacturing operations in North America, Europe, Latin America, Russia, Asia and North Africa. March 29th the company increased its quarterly dividend 40% to $0.2625/share. The dividend is payable on June 15, 2011 to shareholders of record on May 17, 2011. The yield based on the new payout is 3.6%.

The following companies will pay higher dividends in April:

Chubb Corporation (CB) as one of the largest U.S. property-casualty insurers, Chubb has carved out a number of niches, including high-end personal lines and specialty liability lines coverage. April 5th the company will pay its quarterly dividend of $0.39/share. This dividend is 5.4% higher than the previous quarter. The company has paid a cash dividend to shareholders every year since 1902 and has increased its dividend payments for 47 consecutive years. The yield based on the new payout is 2.6%.

The Coca-Cola Company (KO) is the world’s largest beverage company, refreshing consumers with more than 500 sparkling and still brands. April 1st the company will pay its quarterly dividend of $0.47/share. This dividend is 7% higher than the previous quarter. The company has paid a cash dividend to shareholders every year since 1893 and has increased its dividend payments for 49 consecutive years. The yield based on the new payout is 3.0%.

Family Dollar Stores Inc. (FDO) operates a chain of over 6,800 retail discount stores in 44 states across the U.S. April 15th the company will pay its quarterly dividend of $0.18/share. This dividend is 16% higher than the previous quarter. The company has paid a cash dividend to shareholders every year since 1976 and has increased its dividend payments for 35 consecutive years. The yield based on the new payout is 1.4%.

Genuine Parts Co. (GPC) is a distributor of automotive replacement parts in the U.S., Canada and Mexico. April 1st the company will pay its quarterly dividend of $0.45/share. This dividend is 10% higher than the previous quarter. The company has paid a cash dividend to shareholders every year since 1948 and has increased its dividend payments for 55 consecutive years. The yield based on the new payout is 3.4%.

Kimberly Clark Corp. (KMB) is a global consumer products company that produces tissue, personal care and health care. Its brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex, Scott and Kimberly-Clark. April 4th the company will pay its quarterly dividend of $0.70/share. This dividend is 17% higher than the previous quarter. The company has paid a cash dividend to shareholders every year since 1935 and has increased its dividend payments for 38 consecutive years. The yield based on the new payout is 4.3%.

Piedmont Natural Gas (PNY) is an energy services company primarily engaged in the distribution of natural gas to more than one million residential, commercial and industrial utility customers in North Carolina, South Carolina and Tennessee. April 15th the company will pay its quarterly dividend of $0.29/share. This dividend is 3.6% higher than the previous quarter. The company has paid a cash dividend to shareholders every year since 1956 and has increased its dividend payments for 33 consecutive years. The yield based on the new payout is 3.9%.

Wal-Mart Stores, Inc. (WMT) serves customers and members more than 200 million times per week at 8,970 retail units under 60 different banners in 15 countries. April 5th the company will pay its quarterly dividend of $0.3650/share. This dividend is 21% higher than the previous quarter. The company has paid a cash dividend to shareholders every year since 1973 and has increased its dividend payments for 36 consecutive years. The yield based on the new payout is 2.8%.

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: Long KO, GPC, KMB, PNY, WMT. See a list of all my income holdings here.

(Photo Credit)

25 Stocks Building Wealth Through Higher Dividends *

D4L — Fri, 21 Jan 2011 07:30:45 +0000

To ensure a retirement that is free from financial concerns, there are certain things that must be done today. The stock market does not travel in a straight line. There will be times it will behave irrationally. These are the times that try an investor’s patience. Those with clear goals and confidence in their chosen strategy aren’t phased by these market movements. Building a secure future by investing in quality dividend growth stocks is neither complicated nor overly burdensome.

Below are several companies that have recently increased their cash dividends to shareholders:

Alliant Energy (LNT) provides electric and natural gas utility services, and also has various unregulated energy, freight transportation, and other investments. January 14th the company increased its quarterly dividend 13% to $0.45/share. The dividend is payable on February 15, 2011, to share owners of record on close of business January 31, 2011. The ex-dividend date is January 27, 2011. The yield based on the new payout is 4.6%.

Core Labs (CLB) is a Netherlands-based company that provides reservoir description, production enhancement, and reservoir management services to the oil and gas industry worldwide. January 14th the company raised its quarterly dividend to $0.25/share. The dividend is payable on Feb. 25 to shareholders of record on Jan. 25. The ex-dividend date is Jan. 21. The yield based on the new payout is 1.2%.

Calumet Specialty Products (CLMT) is an independent U.S. refiner and marketer operates refineries in Louisiana and facilities in Pennsylvania and Texas, and distributes product throughout North America. January 14th the partnership increased its quarterly distribution 2.2% to $0.47/unit. The distribution will be payable on February 14, 2011 to holders of record of such units at the close of business on February 4, 2011. The ex-distribution date is February 2, 2011. The yield based on the new payout is 7.8%.

Enterprise Products (EPD) is an integrated provider of natural gas and natural gas liquids services, including processing, fractionation, storage, transportation, and terminalling. January 14th the partnership raised its quarterly distribution 1.3% to $0.59/unit. The distribution will be paid on Monday, February 7, 2011, to unitholders of record as of the close of business on Monday, January 31, 2011. The ex-distribution date is January 27, 2011. EPD is a Dividend Achiever and has raised its dividend for 14 consecutive years. The yield based on the new payout is 5.5%.

Standard Motor (SMP) manufactures and distributes replacement parts for the automotive aftermarket. January 18ththe company increased its quarterly dividend 40% to $0.07/share. The dividend is payable on March 1, 2011 to stockholders of record on February 15, 2011. The ex-dividend date is February 11, 2011. The yield based on the new payout is 2.3%.

Crestwood Midstream (CMLP) is involved in gathering and processing natural gas and natural gas liquids. January 18th the partnership increases its quarterly distribution 2.3% to $0.43/unit. This distribution will be paid on February 11, 2011, to unitholders of record on February 1, 2011. The ex-distribution date is January 28, 2011. The yield based on the new payout is 6.1%.

Bar Harbor Bankshares (BHB) offers a range of deposit, loan, and related banking products, as well as brokerage services. January 18th the company raised its quarterly dividend 1.9%. The quarterly cash dividend is payable to all shareholders of record as of the close of business February 16, 2011 and will be paid on March 15, 2011. The yield based on the new payout is 3.6%.

Enterprise Bancorp (EBTC) owns Enterprise Bank and Trust Company, which provides various banking products and services in Massachusetts and New Hampshire. January 18th the company raised its quarterly dividend 5% to $0.105/share. The dividend is payable March 1, 2011 to shareholders of record as of February 8, 2011. The ex-dividend date is February 4, 2011. The yield based on the new payout is 3.0%.

Linear Technology (LLTC) manufactures high-performance linear integrated circuits. January 18th the company increased its quarterly dividend 5.5% to $0.24/share. The dividend is payable March 2, 2011 to stockholders of record on February 18, 2011. The ex-dividend date is February 16, 2011. LLTC is a Dividend Achiever and has raised its dividend for 19 consecutive years. The yield based on the new payout is 2.7%.

Global Partners (GLP) engages in the wholesale and commercial distribution of refined petroleum products and provides ancillary services in the U.S. and internationally. January 19th the partnership raised its quarterly distribution 1% to $0.50/share. The distribution will be paid February 14, 2011 to unitholders of record as of the close of business February 3, 2011. The ex-distribution date is February 1, 2011. The yield based on the new payout is 7.2%.

McGraw-Hill (MHP) is a leading information services organization serves worldwide markets in education, business, industry, other professions and government. January 19th the company increased its quarterly dividend 6.4% to $0.25/share. The dividend will be payable on March 10, 2011, to shareholders of record on February 24, 2011. The ex-dividend date is February 22, 2011. MHP is a Dividend Aristocrat and has raised its dividend for 38 consecutive years. The yield based on the new payout is 2.5%.

Kinder Morgan (KMP) is one of the largest pipeline master limited partnerships (MLPs) in the U.S. January 19th the partnership increased its quarterly distribution 1.8% to $1.13/unit. The distribution is payable on February 14, 2011, to unitholders of record as of January 31, 2011. The ex-distribution date is January 27, 2011. KMP is a Dividend Achiever and has raised its distribution for 15 consecutive years. The yield based on the new payout is 6.3%.

ONEOK (OKE) is an Oklahoma-based integrated natural gas company also has an energy marketing and trading business. January 19th the company raised its quarterly dividend 8% to $0.52/share. The dividend is payable February 14, 2011, to shareholders of record at the close of business January 31, 2011. The ex-dividend date is January 27, 2011. The yield based on the new payout is 3.6%.

Western Gas (WES) engages in the business of gathering, compressing, treating and transporting natural gas. January 19th the partnership raised its quarterly distribution 2.7% to $0.38/unit. The distribution is payable on February 11, 2011 to unitholders of record at the close of business on February 1, 2011. The ex-distribution date is January 28, 2011. The yield based on the new payout is 4.9%.

ALLETE (ALE) mainly provides electric service in northeastern Minnesota and northwestern Wisconsin. January 20th the company increased its quarterly dividend 1.1% to $0.445/share. The quarterly dividend is payable March 1 to common shareholders of record at the close of business on February 15, 2011. The ex-dividend date is February 11, 2011. The yield based on the new payout is 4.8%.

Mac-Gray (TUC) operates as a laundry facilities management contractor in the U.S. January 20th the company raised its quarterly dividend 10% to $0.055/share. The dividend is payable on April 1, 2011, to stockholders of record at the close of business on March 15, 2011. The ex-dividend date is March 11, 2011. The yield based on the new payout is 1.4%.

Finish Line (FINL) is a mall-based specialty retailers in United States. January 20th the company increased its quarterly dividend 25% to $0.05/share. The quarterly cash dividend will be payable March 14, 2011 to shareholders of record as of February 25, 2011. The ex-dividend date is February 21, 2011. The yield based on the new payout is 1.2%.

Washington Post (WPO) publishes The Washington Post newspaper, operates TV stations and cable systems, and provides education and database services. January 20th the company raised its quarterly dividend 4.4% to $2.35/share. The The dividend is payable on February 11, 2011, to shareholders of record on January 31, 2011. The ex-dividend date is January 27, 2011. The yield based on the new payout is 2.1%.

Family Dollar (FDO) operates a chain of over 6,800 retail discount stores in 44 states across the U.S. January 20th the company increased its quarterly dividend 16% to $0.18/share. The dividend is payable Friday, April 15, 2011, to shareholders of record at the close of business on Tuesday, March 15, 2011. The ex-dividend date is March 11, 2011. FDO is a Dividend Aristocrat and has raised its dividend for 35 consecutive years. The yield based on the new payout is 1.6%.

StoneMor (STON) operates 235 cemeteries in 24 states and Puerto Rico (as of December 31, 2009). January 20th the partnership raised its quarterly distribution 1.8% to $0.575/unit. The distribution is payable on February 14, 2011, to common and subordinated unit holders of record as of the close of business on January 31, 2011. The ex-distribution date is January 27, 2011. The yield based on the new payout is 7.5%.

1st Source Corporation (SRCE) owns 1st Source Bank and First National Bank, Valparaiso that offer commercial and consumer banking services to clients in Indiana and Michigan. January 20th the company increased its quarterly dividend 6.7% to $0.16/share. The cash dividend is payable on February 15, 2011 to shareholders of record on February 4, 2011. The yield based on the new payout is 3.5%.

Polaris Industries (PII) designs, engineers, and manufactures all terrain vehicles, snowmobiles, and motorcycles. January 20th the company raised its quarterly dividend 13% to $0.45/share. The dividend is payable on February 15, 2011 to shareholders of record at the close of business on February 1, 2011. The ex-dividend date is January 28, 2011. PII is a Dividend Achiever and has raised its dividend for 16 consecutive years. The yield based on the new payout is 2.5%.

Centerpoint Energy (CNP) is one of the largest electric and natural gas delivery companies in the U.S. January 20th the company increased its quarterly dividend to $0.1975/share. The dividend is payable on March 10 to shareholders of record on Feb. 16. The ex-dividend date is Feb. 14. The yield based on the new payout is 4.96%.

ONEOK (OKS) is a leading transporter of natural gas and natural gas liquids (NGLs) in the Mid-Continent area to market centers in the U.S. January 20th the partnership raised its quarterly distribution to $1.14/unit. The distribution is payable February 14, 2011, to unitholders of record as of January 31, 2011. The ex-dividend date is January 27, 2011. The yield based on the new payout is 5.7%.

Pall Corp. (PLL) is a leading producer of filters for the health care, aerospace, microelectronics and other industries.
January 20th the company increased its quarterly dividend 9.4% to $0.175/share. The dividend is payable on February 23, 2011 to shareholders of record as of February 8, 2011. The ex-dividend date is February 4, 2011. The yield based on the new payout is 1.4%.

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

(Photo Credit)

13 Dividend Stocks With A Great Attribute *

D4L — Fri, 22 Jan 2010 11:30:13 +0000

I couldn’t begin to estimate how many different stocks are traded around the world on the various exchanges. Like everything else, there are many participants, but few players. Though the population of stocks may be large, there are only a precious few that are worthy dividend stocks. Increasing dividends is one attribute that separates the good dividend stocks from the rest.

This week a large number of companies chose to step up and reward their investors with higher cash dividends:

Enterprise Bancorp (EBTC) provides various banking products and services in Massachusetts and New Hampshire. January 19th the company increased its quarterly dividend 5.3% to $0.10/share. The dividend is to be paid on March 1, 2010 to shareholders of record as of February 8, 2010. The ex-dividend date is February 4, 2010. The yield based on the new payout is 3.80%.

ONEOK Partners (OKS) is a leading transporter of natural gas and natural gas liquids (NGLs) in the Mid-Continent area to market centers in the U.S. January 20th the partnership raised its quarterly distribution to $1.10/unit. The distribution is payable Feb. 12, 2010, to unitholders of record as of Jan. 29, 2010. ONEOK Partners has increased its distribution by more than 38 percent since April 2006, when a wholly owned subsidiary of ONEOK, Inc. (NYSE: OKE) became general partner. The yield based on the new payout is 6.67%.

McGraw-Hill (MHP) is a leading information services organization serving worldwide markets in education, business, industry, other professions and government. January 20th the company boosted its quarterly dividend 4.4% to $0.235/share. The dividend is payable on March 10, 2010, to shareholders of record on February 24, 2010. MHP is a Dividend Aristocrat and has raised its dividend for 37 consecutive years. The yield based on the new payout is 2.88%.

Omega Healthcare (OHI) is a real estate investment trust that invests in and provides financing to the long-term care industry with health care facilities in 27 states. January 20th the company increased its quarterly dividend to $0.32/share. The dividend is to be paid February 16, 2010 to common stockholders of record on January 29, 2010. The ex-dividend date is January 27, 2010. The yield based on the new payout is 6.42%.

Tiffany (TIF) is a leading international retailer, designer, manufacturer, and distributor of fine jewelry and gift items. January 21st the company raised its quarterly dividend by 18% to $0.20/share and announced it will resume share buybacks. The new dividend is effective with the next payment in April. The yield based on the new payout is 1.92%.

Washington Post (WPO) publishes The Washington Post newspaper and Newsweek magazine, operates TV stations and cable systems, and provides education and database services. January 21st the company bumped its quarterly dividend $2.25/share. The dividend is payable on February 5, 2010, to shareholders of record on January 25, 2010. The yield based on the new payout is 2.01%.

Family Dollar (FDO) operates a chain of more than 6,650 retail discount stores in 44 states across the U.S. January 21st the company increased its quarterly dividend 14.8% to $0.155/share.The dividend is payable Thursday, April 15, 2010, to shareholders of record at the close of business on Monday, March 15, 2010. FDO is a Dividend Aristocrat and has raised its dividend for 34 consecutive years. The yield based on the new payout is 2.01%.

Wesco Financial (WSC) engages in three principal businesses through its subsidiaries: insurance, furniture rental, and steel services. January 21st the company increased its quarterly to $0.41/share. The dividend is payable March 4, 2010 to shareholders of record at the close of business on February 4, 2010. The ex-dividend date is February 2, 2010. WSC is a Dividend Achiever and has raised its dividend for 38 consecutive years. The yield based on the new payout is 0.46%.

Polaris Industries (PII) manufactures snowmobiles, all-terrain vehicles, motorcycles, and related accessories for recreational and/or utility use. January 21st the company raised its quarterly dividend 3% to $0.40/share. The dividend is payable on February 16, 2010 to shareholders of record at the close of business on February 1, 2010. PII is a Dividend Achiever and has raised its dividend for 15 consecutive years. The yield based on the new payout is 3.61%.

Spectra Energy Partners (SEP) transports natural gas through interstate pipeline systems, and stores natural gas in underground facilities in the United States. January 21st the partnership boosted its quarterly distribution 2.5% to $0.41/unit. The distribution is payable on February 12, 2010, to unitholders of record at the close of business on February 2, 2010. The yield based on the new payout is 5.40%.

Pall Corp (PLL) is a leading producer of filters for the health care, aerospace, microelectronics, and other industries. January 21st the company increased its quarterly dividend to $0.16/share. The dividend is payable on February 23, 2010 to shareholders of record as of February 9, 2010. The ex-dividend date is February 5, 2010. The yield based on the new payout is 1.75%.

Consolidated Edison (ED) is an electric and gas utility holding company serving parts of New York, New Jersey, and Pennsylvania. January 21st the company raised its quarterly dividend to $0.595/share. ED is a Dividend Aristocrat and has raised its dividend for 36 consecutive years. The yield based on the new payout is 5.22%.

Finish Line (FINL) is a mall-based specialty retailer. January 21st the company bumped it quarterly dividend to $0.04/share. The dividend is payable March 15, 2010 to shareholders of record as of February 26, 2010. The ex-dividend date is February 24, 2010. The yield based on the new payout is 1.38%.

Although growing its dividend is important, to be a great dividend stock a company must do it on a consistent basis. 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.

(Photo Credit)

Dividend Payout vs. Free Cash Flow Payout *

D4L — Wed, 14 Oct 2009 10:30:29 +0000

I am a firm believer in keeping things simple. However, you can simplify things to the point they no longer have value. In my opinion, a lot of the commonly used financial metrics can be very misleading unless you understand what is behind them. I would put EBIT, EBITDA and Dividend Payout in this category. As an investor in dividend stocks, I see Dividend Payout used a lot, so let’s take a closer look at it.

Dividend payout is expressed as a percentage and is calculated by dividing annual dividend per share by annual earnings per share (EPS). This tells the investor what percentage of earning the company is paying out as a dividend. At first blush this may seem to make a lot of sense, but it suffers from the following potential problems:

I. Earnings Does Not Equal Cash

As an accountant, I can tell you our profession in its pursuit of theoretical perfection has adulterated the financial statements to the point that it has become very difficult for non-accountants to understand what’s behind the numbers. Accounting pronouncements such as SFAS No. 143 “Accounting for Asset Retirement Obligations” (ARO) that requires a company to recognize expenses today for cash payments that may not occur for decades or even centuries widens the gap between earnings and cash. Applying “fair value” principles allowed under GAAP, financial institutions (and others) can mark to market debt on their books and create non-cash income or expense, depending on the direction of interest rates. Many point to mark to market accounting as one of the major contributors to the 2008 financial melt-down.

II. Quality of Earnings

Would you rather a company that you are invested in to increase its earnings by 1.) increasing sales and holding cost down or 2.) sell a fully depreciated plant. Obviously, you would rather have the former since it has the possibility of being duplicated over and over again. You can only sell a specific asset once. In addition to cash and non-cash earnings, a statement of earnings also contains operating and non-operating earnings.

A Better Dividend Payout Calculation

A dividend payout ratio is supposed to provide the investor with an indication of how much cash as a percent of earnings the company is paying its investors. As you can see from the above discussion, a payout ratio based on GAAP net earnings could potentially have a lot of noise in it and not provide a clear picture of the economic condition of the business.

What the investor is really wanting to know is what percentage of cash is the company paying as a percentage of cash generated from running the business. The irony here is that operating cash is readily available on the Statement Of Cash Flows in the Operating section. This section focuses on the cash generated by running the business. It excludes cash generated by selling pieces of the business – these are shown in the investing section. It also excludes cash generated from selling stock or issuing debt – these are shown in the financing section.

In calculating a payout ratio, I prefer Free Cash Flow over Operating Cash Flow. Free Cash Flow is Operating Cash Flow less normal capital expenditures (normally the first line in the investing section). For a business to remain viable, it must replace capital assets when they wear out.

The formula for Free Cash Flow Payout is simply Annual Dividend Per Share divided by Free Cash Flow Per Share. I like to see a percentage of 70% or less. The 70% is somewhat higher than many people look for with a traditional payout ratio. I am comfortable with the higher number since we are talking about real cash generated from running the business vs. accounting earnings that may or may not be there. So how do the two ratios compare?

Needless to say, the variances are all over the place. In many companies I looked at the traditional dividend payout ratio was within 10 percentage points higher than a free cash flow payout. This means the GAAP earnings was lower than the calculated Free Cash Flow. Here are some example of this situation:

Chubb Corp (CB) – Traditional: 28% – FCF Payout: 21% – Analysis
Clorox Company (CLX) – Traditional: 50% – FCF Payout: 50%
Emerson Electric Co. (EMR) – Traditional: 53% – FCF Payout: 45% – Analysis
Family Dollar Stores Inc. (FDO) – Traditional: 25% – FCF Payout: 22%
Hormel Foods Corp. (HRL) – Traditional: 34% – FCF Payout: 33%
International Business Machines (IBM) – Traditional: 23% – FCF Payout: 18%
3M Co. (MMM) – Traditional: 50% – FCF Payout: 45% – Analysis
Microsoft Corp. (MSFT) – Traditional: 32% – FCF Payout: 29%
SYSCO Corporation (SYY) – Traditional: 52% – FCF Payout: 48% – Analysis
United Technologies Corp. (UTX) – Traditional: 35% – FCF Payout: 30% – Analysis

Sometime the gap is much larger. This could have resulted from significant non-cash charges on the income statement. Companies with large gaps include:

Aflac Incorporated (AFL) – Traditional: 44% – FCF Payout: 10% – Analysis
CenturyLink Inc. (CTL) – Traditional: 87% – FCF Payout: 46%
Diebold Inc (DBD) – Traditional: 74% – FCF Payout: 30%
Illinois ToolWorks Inc. (ITW) – Traditional: 76% – FCF Payout: 31% – Analysis
Leggett & Platt Inc. (LEG) – Traditional: 262% – FCF Payout: 34% – Analysis
Nucor Corporation (NUE) – Traditional: 88% – FCF Payout: 29% – Analysis
Pitney Bowes Inc. (PBI) – Traditional: 73% – FCF Payout: 38%
PPG Inds Inc (PPG) – Traditional: 158% – FCF Payout: 48%
RLI Corp (RLI) – Traditional: 158% – FCF Payout: 48% – Analysis
RPM International Inc (RPM) – Traditional: 84% – FCF Payout: 49% – Analysis
AT&T Inc. (T) – Traditional: 81% – FCF Payout: 49%

Sometimes the gap is not only large, but goes the other way. This is potentially the most dangerous since focusing on the traditional dividend payout may lead you to believe the dividend is covered better than it actually is. Examples of this situation would include:

Air Products and Chemicals Inc. (APD) – Traditional: 56% – FCF Payout: 172%
Franklin Resources Inc. (BEN) – Traditional: 23% – FCF Payout: 48%
BP Plc (BP) – Traditional: 50% – FCF Payout: 114% – Analysis
Lowe’s Companies, Inc. (LOW) – Traditional: 27% – FCF Payout: 57% – Analysis
Exxon Mobil Corp (XOM) – Traditional: 27% – FCF Payout: 54%

Although Free Cash Flow Payout is a better payout ratio than the traditional dividend ratio, the investor should look at both and understand the differences. Taking an expense for impairing goodwill is much different than recognizing an expense for losing a lawsuit. The former will not directly involve cash out the door, but the latter will if the company loses on appeal.

Full Disclosure: Long CLX, EMR, MMM, SYY, UTX, AFL, CTL, ITW, NUE, BP. See a list of all my income holdings here.

(Photo Credit)

Bank of America Headed Back to the TARP ATM *

D4L — Fri, 16 Jan 2009 11:30:00 +0000

Someone once said that there is no such thing as bad publicity. I think Bank of America (BAC) would take exception to that statement. BAC has been in the news all week and it has not been flattering or reassuring to it shareholders. This once proud dividend aristocrat continues to struggle even after slashing its dividend.

Monday, Citigroup (C) issued some cautious comments on BAC and said investors should be braced for a very challenging 4Q. C cut Q4 EPS estimates, expects another dividend cut and expects the company raise fresh capital, but will wait for a better environment. Ultimately, C sees cumulative credit losses of $165 billion for 2008-2011, with only about 33% recognized so far.

Yesterday it was reported that BAC needs more aid from the government for its Merrill Lynch acquisition. To date, BAC has received $25 billion from the Treasury Department’s Troubled Assets Relief Program (TARP). According to the The Wall Street Journal, BAC needs additional assistance to deal with an ugly quarterly report from Merrill. By mid-day Thursday shares were down 20% to around $8.

Not all news was bad this week. Instead of looking for a government handout, several companies continue to increase the cash given to their shareholders through higher dividends. Here are a few:

Robbins & Myers (RBN) Increases Dividend to $0.04/share (Yield 0.96%)
CVS Caremark (CVS) Boosts Qtr. Dividend 10.5% to $0.0725 (Yield 1.1%)
Cintas (CTAS) Boosts Annual Dividend to $0.47 (Yield 2.02%)
Linear Technology (LLTC) Boosts Qtr. Dividend to $0.22/share (Yield 3.98%)
Monsanto (MON) Boosts Qtr Dividend 10% to $0.265 (Yield 1.38%)
Pentair (PNR) Boosts Qtr. Dividend from $0.17 to $0.18 (Yield 2.97%)
Shaw Communications (SJR) Raises Annual Dividend to $0.053 (Yield 3.80%)
Family Dollar (FDO) Raises Qtr. Dividend by 8% to $0.135/share, (Yield 1.89%)

When BAC cut its dividend it no longer met the criteria for inclusion in my income portfolio. There is a reason that my most basic investing rule is to immediately sell a stock after it cuts its dividend; I BAC sold at $28.51/share after its first dividend cut.

Disclosure: No position in the aforementioned securities.

(Photo: Steve Woods)