Gap Inc. (GPS) operates as a specialty retailing company. February 24th the company increased its quarterly dividend 13% to $0.1125/share. The dividend is payable on or after April 27, 2011 to shareholders of record at the close of business on April 6, 2011. The yield based on the new payout is 2.0%.

Chubb Corporation (CB) provides property and casualty insurance to businesses and individuals. February 24th the company increased its quarterly dividend 5.4% to $0.39/share. The dividend is payable April 5, 2011 to shareholders of record on March 18, 2011. The yield based on the new payout is 2.6%.

BlackRock, Inc. (BLK) is a leader in investment management, risk management and advisory services for institutional and retail clients worldwide. February 24th the company increased its quarterly dividend 37.5% to $1.375/share. The dividend is payable March 23, 2011 to shareholders of record at the close of business on March 7, 2011. The yield based on the new payout is 2.7%.

Colgate-Palmolive Company (CL) is a leading global consumer products company, tightly focused on Oral Care, Personal Care, Home Care and Pet Nutrition. February 24th the company increased its quarterly dividend 9% to $0.58/share. The Company has paid uninterrupted dividends on its common stock since 1895. The yield based on the new payout is 3.0%.

TECO Energy, Inc. (TE) is an energy-related holding company and its principal subsidiary, Tampa Electric Company, is a regulated utility in Florida with both electric and gas divisions. February 24th the company increased its quarterly dividend 3.7% to $0.215/share. The yield based on the new payout is 4.9%.

Southwest Gas Corporation (SWX) provides natural gas service to approximately 1.8 million customers in Arizona, Nevada, and California. February 24th the company increased its quarterly dividend to $0.265/share. The Company has paid quarterly dividends continuously since going public in 1956, and has raised its dividend in each of the past five years. The yield based on the new payout is 2.8%.

WesBanco, Inc. (WSBC) is a multi-state bank holding company of $5.4 billion in total assets providing banking services through 112 locations and 132 ATMs in West Virginia, Ohio and Pennsylvania. February 24th the company increased its quarterly dividend 7.1% to $0.15 per common share from the previous quarterly dividend rate of $0.14/share. The increased dividend will be payable on April 1, 2011 to shareholders of record on March 11, 2011. The yield based on the new payout is 4.6%.

Old Republic International Corporation (ORI) provides risk management services for a wide variety of coverages, principally in the property and liability, mortgage guaranty and title insurance fields. February 24th the company increased its quarterly dividend to $0.1750/share. The dividend is payable March 15, 2011, to shareholders of record on March 4, 2011. This latest dividend increase marks the 30th consecutive year that Old Republic has boosted its cash dividend rate, and 2011 becomes the 30th year of uninterrupted cash dividend payments. The yield based on the new payout is 5.7%.

First PacTrust Bancorp, Inc. (FPTB) provides various financial services primarily in San Diego and Riverside Counties, California. February 24th the company increased its quarterly dividend 5% to $0.105/share. The dividend will be payable on April 1, 2011 to shareholders of record as of March 11, 2011. The yield based on the new payout is 2.8%.

Essex Property Trust, Inc. (ESS) a real estate investment trust (REIT) with apartment communities located in targeted West Coast markets. February 23rd the company increased its quarterly dividend to $1.04/share. The dividend distribution is payable on April 15, 2011 to shareholders of record as of March 31, 2011 The yield based on the new payout is 3.5%

The Westar Energy, Inc. (WR) is the largest electric utility in Kansas, providing electric service to about 687,000 customers in the state. February 23rd the company increased its quarterly dividend 3% to $0.32/share. The dividend is payable April 1, 2011 on the company’s common stock. The yield based on the new payout is 4.9%

Nordstrom, Inc. (JWN) is one of the nation’s leading fashion specialty retailers, with 204 stores located in 28 states. February 23rd the company increased its quarterly dividend 15% to $0.23/share. The dividend is payable on March 15, 2011, to shareholders of record on March 4, 2011. The yield based on the new payout is 2.1%

Packaging Corporation of America (PKG) is the fifth largest producer of containerboard and corrugated packaging products in the United States. February 22st the company increased its quarterly dividend 33% to $0.20/share. The dividendis payable on April 15, 2011 to shareholders of record as of March 15, 2011. The yield based on the new payout is 2.8%

B&G Foods, Inc. (BGS) and its subsidiaries manufacture, sell and distribute a diversified portfolio of high-quality, shelf-table foods across the United States, Canada and Puerto Rico. February 22st the company increased its quarterly dividend 24% to $0.21/stock. The dividend is payable on May 2, 2011 to shareholders of record as of March 31, 2011. This is the twenty-sixth consecutive quarterly dividend declared by the Board of Directors since B&G Foods’ initial public offering in October 2004. The yield based on the new payout is 6.0%.

The Allstate Corp. (ALL) is the nation’s largest publicly held personal lines insurer. February 22st the company increased its quarterly dividend to $0.21/share. The dividend is payable in on April 1, 2011 to stockholders of record at the close of business on March 11, 2011. The yield based on the new payout is 2.7%.

Sempra Energy (SRE) is a Fortune 500 energy services holding company with 2009 revenues of more than $8 billion. February 22st the company increased its quarterly dividend 23% to $0.48/share. The dividend is payable April 15, 2011, to shareholders of record on March 18, 2011. The yield based on the new payout is 3.6%.

The Home Depot (HD) is the world’s largest home improvement retailer. February 22st the company increased its quarterly dividend 6% to $0.25/share. “As a testament to our confidence in the Company’s strategic initiatives and our commitment to returning capital to our shareholders, the board increased the dividend for the second consecutive year,” Frank Blake, chairman & CEO. “It is our intent to increase our dividend every year. Our longer-term targeted dividend payout ratio is 40 percent.” The dividend is payable on March 24, 2011, to shareholders of record on the close of business on March 10, 2011. This is the 96th consecutive quarter the Company has paid a cash dividend. The yield based on the new payout is 2.7%.

Flowserve Corp. (FLS) is one of the world’s leading providers of fluid motion and control products and services. February 21st the company increased its quarterly dividend 10.3% to $0.32/share. The dividend is payable on April 14, 2011, to shareholders of record as of the close of business on March 31, 2011. The yield based on the new payout is 1.1%.

Gentex Corporation (GNTX) is the leading supplier of automatic-dimming rearview mirrors and camera-based active safety systems to the global automotive industry. February 21st the company increased its quarterly dividend 9% to $0.12/share. The dividend is payable April 21, 2011, to shareholders of record of the common stock at the close of business on April 7, 2011. The yield based on the new payout is 1.5%.

Genuine Parts Co. (GPC) is a distributor of automotive replacement parts in the U.S., Canada and Mexico. February 21st the company increased its quarterly dividend 10% to $0.45/share is payable April 1, 2011 to shareholders of record March 11, 2011. GPC has paid a cash dividend every year since going public in 1948, and 2011 marks the 55th consecutive year of increased dividends paid to shareholders. The yield based on the new payout is 3.4%.

Abbott (ABT) is a global, broad-based health care company devoted to the discovery, development, manufacture and marketing of pharmaceuticals and medical products, including nutritionals, devices and diagnostics. February 18th the company increased its quarterly dividend 9% to to $0.48/share. This marks the 39th consecutive year that Abbott has increased its dividend payout and the 349th consecutive quarterly dividend to be paid by Abbott since 1924. The dividend is payable May 16, 2011, to shareholders of record at the close of business on April 15, 2011. The yield based on the new payout is 4.1%.

Questar Corp.’s (STR) is a Rockies-based integrated natural gas company with an enterprise value of about $4.3 billion and three complementary lines of business. February 18th the company increased its quarterly dividend 9% to $0.1525/share. The dividend is payable March 21, 2011 to shareholders of record on March 4, 2011. This is the company’s 265th consecutive quarterly dividend. Questar has increased its dividend 38 times in the last 39 years. The yield based on the new payout is 3.4%.

MOCON, Inc. (MOCO) is a leading provider of detectors, instruments, systems and consulting services to research laboratories, production facilities, and quality control and safety departments. February 18th the company increased its quarterly dividend 5% to $0.10/share. The dividend is payable on May 20, 2011, to shareholders of record on May 6, 2011. The yield based on the new payout is 3.2%.

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 ABT, CL, GPC. See a list of all my income holdings here.

Related Posts
- Why We Are Dividend Growth Investors
- What Would Warren Buffett Do?
- Ten Dividend Stocks With 50+ Years of Consecutive Increases
- Dividend Stocks: Confident and Secure
- The Next Great Company

(Photo Credit)

Linked here is a detailed quantitative analysis of Lowe’s Companies, Inc. (LOW). Below are some highlights from the above linked analysis:

Company Description: Lowe’s Companies, Inc. sells retail building materials and supplies, lumber, hardware and appliances through more than 1,700 stores in the U.S. and Canada.

Fair Value: In calculating fair value, I consider the NPV MMA Differential Fair Value along with these 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

LOW is trading at a discount to only 1.) above. The stock is trading at a 7.4% discount to its calculated fair value of $26.68. LOW earned a Star in this section since it is trading at a fair value.

Dividend Analytical Data: In this section there are three possible Stars and three key metrics, see page 2 of the linked PDF for a detailed description:

1. Free Cash Flow Payout
2. Debt To Total Capital
3. Key Metrics
4. Dividend Growth Rate
5. Years of Div. Growth
6. Rolling 4-yr Div. > 15%

LOW earned two Stars in this section for 2.) and 3.) above. The stock earned a Star as a result of its most recent Debt to Total Capital being less than 45%. LOW earned a Star for having an acceptable score in at least two of the four Key Metrics measured. Rolling 4-yr Div. > 15% means that dividends grew on average in excess of 15% for each consecutive 4 year period over the last 10 years (2001-2004, 2002-2005, 2003-2006, etc.) I consider this a key metric since dividends will double every 5 years if they grow by 15%. The company has paid a cash dividend to shareholders every year since 1961 and has increased its dividend payments for 48 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

LOW earned a Star in this section for its NPV MMA Diff. of the $1,474. This amount is in excess of the $500 target I look for in a stock that has increased dividends as long as LOW has. If LOW grows its dividend at 15.0% per year, it will take 7 years to equal a MMA yielding an estimated 20-year average rate of 3.9%.

Memberships and Peers: LOW is a member of the S&P 500, a Dividend Aristocrat and a member of the Broad Dividend Achievers™ Index and a Dividend Champion. The company’s peer group includes: The Home Depot, Inc. (HD) with a 2.6% yield, KingFisher plc (KGFHY.PK) with a 2.7% yield and Rona Inc. (RON.TO) with a 1.0% yield.

Conclusion: LOW 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 total of four Stars. This quantitatively ranks LOW as a 4 Star-Buy.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $34.63 before LOW’s NPV MMA Differential decreased to the $500 minimum that I look for in a stock with 48 years of consecutive dividend increases. At that price the stock would yield 1.21%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $500 NPV MMA Differential, the calculated rate is 12.0%. This dividend growth rate is below the 15.0% used in this analysis, thus providing a margin of safety. LOW has a risk rating of 1.00 which classifies it as a low risk stock.

As the second-largest home-improvement retailer in the world, LOW enjoys tremendous enables purchasing power enabling it to provide low prices to its customers. The company is a well-managed company with a highly automated distribution network. The housing slump has hurt LOW, and will likely to do so in the near-term. However, its strong balance sheet, including a relatively low debt level, and impressive free cash flows should provide ample cushion to see LOW through the downturn. Even though LOW is trading below my $26.68 fair value price, I hesitate to initiate a position due to its low yield. 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 LOW (0.0% of my Income Portfolio). See a list of all my income holdings here.

Related Articles:

- Becton, Dickinson and Co. (BDX) Dividend Stock Analysis
- AT&T Inc. (T) Dividend Stock Analysis
- Harleysville Group Inc. (HGIC) Dividend Stock Analysis
- Nucor Corporation (NUE) Dividend Stock Analysis
- More Stock Analysis

This week several companies took a step toward doubling their shareholders yield-on-cost by increasing their cash dividends:

PG&E Corp. (PCG) is the parent of Pacific Gas & Electric Co. On February 19th the company increased its quarterly dividend to to $0.455/share. The yield based on the new payout is 4.33%.

Abbott (ABT) is a leading maker of drugs, nutritional products, diabetes monitoring devices, and diagnostics. February 19th the company raised its quarterly dividend 10% to $0.44/share. The cash dividend is payable May 15, 2010, to shareholders of record at the close of business on April 15, 2010. The ex-dividend date is April 13. ABT is a Dividend Aristocrat and has raised its dividend for 38 consecutive years. The yield based on the new payout is 3.24%. [Analysis]

ITT Corp (ITT) is a diversified industrial manufacturer of advanced technology products. February 22nd the company raised its quarterly dividend 18% to $0.25/share. The dividend is payable on April 1, 2010 to shareholders of record on March 3, 2010. The ex-dividend date is March 1. The dividend yield is 1.95% on the new payout.

Home Depot (HD) operates a chain of over 2,200 retail warehouse-type stores, selling a wide variety of home improvement products. February 23rd the company increased its quarterly dividend 5% to 23.625/share. The dividend is payable on March 25, 2010, to shareholders of record on the close of business on March 11, 2010. The dividend yield is 3.01% on the new payout.

Kimberly-Clark (KMB) is a leading consumer products company’s global tissue, personal care and health care brands include Huggies, Pull-Ups, Kotex, Depend, Kleenex and Scott. February 23rd the company raised its quarterly dividend 10% to $0.66/share. The dividend is payable on April 5, 2010, to stockholders of record on March 5, 2010. The ex-dividend date is March 3, 2010. KMB is a Dividend Aristocrat and has raised its dividend for 38 consecutive years. The yield based on the new payout is 4.38%. [Analysis]

MOCON (MOCO) makes equipment to test packages and packaging material, and performs consulting and analytical services. February 24th the company raised its quarterly dividend 6% to $0.095/share. The dividend is payable on May 21, 2010, to shareholders of record on May 7, 2010. The ex-dividend date is May 5, 2010. Yield on the dividend is 3.74%.

Digital Realty Trust (DLR) operates as a real estate investment trust (REIT). February 24th the company increased its quarterly dividend to $0.48/share. The dividend will be paid on March 31, 2010, to common stockholders of record as of the close of business on March 15, 2010. The ex-dividend date is March 11, 2010. Yield on the dividend is 3.76%.

Altria Group (MO) is the largest U.S. cigarette producer. February 24th the company increased its quarterly dividend 3% to $0.35/share. The dividend is payable on April 9, 2010, to stockholders of record as of March 15, 2010. The ex-dividend date is March 11, 2010. MO is a Dividend Achiever and has raised its dividend for 14 consecutive years. The yield based on the new payout is 6.91%.

Westar Energy (WR) provides electric generation, transmission and distribution services to apx. 674,000 customers in Kansas as of December 31, 2007. February 24th the company raised its quarterly dividend 3.3% to $0.31/share. The dividend is payable April 1, 2010 to shareholders of record on March 9, 2010. The ex-dividend date is March 5. The yield based on the new payout is 5.62%.

Chubb (CB) is 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. February 24th the company increased its quarterly dividend 5.7% to $0.37/share. The dividend is payable on April 6 to shareholders of record on March 19. The ex-dividend date is March 17. CB is a Dividend Aristocrat and has raised its dividend for 45 consecutive years. The yield based on the new payout is 2.90%. [Analysis]

Weingarten Realty Investors (WRI) is a REIT focusing on shopping centers and industrial properties. February 24th the company increased its dividend. The yield based on the new payout is 4.92%.

McGrath Rentcorp (MGRC) rents and sells modular buildings and electronic test and measurement equipment; and manufactures and sells portable classrooms. February 24th the company increased its quarterly dividend to $0.225/share. The dividend is payable on April 30, 2010, to all shareholders of record on April 16, 2010. The ex-dividend date is April 14, 2010. MGRC is a Dividend Achiever and has raised its dividend for 18 consecutive years. The yield based on the new payout is 3.69%.

Essex Property Trust (ESS) is a real estate investment trust primarily owns and operates multi-family properties in California and the Pacific Northwest. February 24th the company raised its quarterly dividend to $1.0325/share. The dividend is payable on April 15, 2010 to shareholders of record as of March 31, 2010, will be $1.0325 per share. The ex-dividend date is March 29, 2010. ESS is a Dividend Achiever and has raised its dividend for 16 consecutive years. The yield based on the new payout is 4.83%.

Donaldson (DCI) operates as a worldwide manufacturer of filtration systems and replacement parts. February 24th the company increased its quarterly dividend 4% to $0.12/share. The dividend is payable March 19th to shareholders of record as of March 5th. The ex-dividend date is March 3. DCI is a Dividend Achiever and has raised its dividend for 24 consecutive years. The yield based on the new payout is 1.147%.

CenturyLink (CTL) provides voice service to 7 million customers and Internet service to 2 million customers in both rural towns and larger cities, like Las Vegas. February 25th the company raised its quarterly dividend 3.6% to $0.725/share. The dividend is payable on March 22, 2010 to shareholders of record on March 9, 2010. The ex-dividend date is March 5, 2010. CTL is a Dividend Aristocrat and has raised its dividend for 36 consecutive years. The yield based on the new payout is 8.37%.

Gap Inc. (GPS) is a specialty apparel retailer operates Gap, Banana Republic and Old Navy stores. February 25th the company increased its dividend 18% to $0.10/share. The dividend is payable on April 28, 2010 to shareholders of record at the close of business on April 7, 2010. The yield based on the new payout is 1.96%.

Old Republic Int. (ORI) writes property and liability, mortgage guaranty, title and life, and disability insurance. February 25th the company raised its quarterly dividend 1.4% to $0.1725/share. The dividend is payable March 15, 2010, to shareholders of record on March 5, 2010. Yield on the dividend is 6.1%. ORI is a Dividend Achiever and has raised its dividend for 28 consecutive years. The yield based on the new payout is 6.13%.

Cleco Corp (CNL) generates, transmits, distributes and sells electricity in Louisiana; holds ownership interest in three steam electric generating stations and one gas turbine. February 25th the company increased its quarterly dividend 11% to $0.25/share. The dividend is payable May 15, 2010. The yield based on the new payout is 3.90%.

The only way a company can consistently increase yield-on-cost is to consistently raise their dividends paid. For a list of stocks with a long string of consecutive cash dividend increases, see this list.

Full Disclosure: Long ABT, KMB, CTL. See a list of all my income holdings here.

(Photo Credit)

Dividend Aristocrats: Companies in the S&P 500 that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. As the name denotes, these are the best of the best – the blue blood stocks, including names like:

- Clorox Co (CLX) | Yield: 3.30%
- Coca-Cola Co (KO) | Yield: 2.90% | Analysis
- Emerson Electric (EMR)| Yield: 2.80% | Analysis
- Exxon Mobil (XOM)| Yield: 2.60%
- Johnson & Johnson (JNJ)| Yield: 3.10% | Analysis
- McDonald’s Corp (MCD)| Yield: 3.40% | Analysis
- Procter & Gamble (PG)| Yield: 2.80% | Analysis
- Wal-Mart Stores (WMT) | Yield: 2.00% | Analysis

US Broad Dividend Achievers: Is comprised of companies incorporated in the United States or its territories, trade on the NYSE, NASDAQ or AMEX, and have increased their annual regular dividend payments for the last ten or more consecutive years. Notable names on this list include:

- Chevron Corporation (CVX) | Yield: 3.70%
- Donaldson Company (DCI) | Yield: 1.10%
- McCormick & Co. (MKC) | Yield: 2.80%
- Nucor Corp. (NUE) | Yield: 3.20% | Analysis
- Raven Industries, Inc. (RAVN) | Yield: 1.90% | Analysis

The U.S. Dividend Champions: Is maintained by Dave Fish of MoneyPaper. The list is updated monthly and located at the The Drip Investing Resource Center. Like the Dividend Aristocrats above the Dividend Champions list looks for companies that have increased their dividend for at least 25 consecutive years. However, since S&P 500 membership is not a requirement, the list is larger than the Dividend Aristocrats list and also includes small-cap companies.

- Bowl America (BWL.A) | Yield: 4.50%
- Conn. Water Service (CTWS) | Yield: 4.00%
- Weyco Group Inc. (WEYS) | Yield: 2.70%

Needless to say, last year saw many companies fall off the list. Overall the number of constituents fell to 218 stocks in 2010 from 319 in 2009. What made last year so unusual were the number of big-name companies that no longer qualified for inclusion on the list, some that had paid increasing dividends for decades, including:

- American International Group, Inc. (AIG)
– Bank of America Corporation (BAC)
– General Electric Co. (GE)
- The Home Depot, Inc. (HD)
- Johnson Controls Inc. (JCI)
- Pfizer Inc. (PFE)
- US Bancorp (USB)

The news wasn’t all bad. Partially offsetting the 133 companies that fell off the list were 32 new companies joining the Dividend Stock Ideas List. For the most part, these aren’t household names, not yet at least, but here are some names we will likely be seeing in the future:

- Arrow Financial Corporation (AROW) | Yield: 3.90%
- Energy Transfer Partners L.P. (ETP) | Yield: 7.80%
- Federated Investors, Inc. (FII) | Yield: 3.70%
- Getty Realty Corp. (GTY) | Yield: 8.50%
- Hudson City Bancorp, Inc. (HCBK) | Yield: 4.60%
- Investors Real Estate Trust (IRET) | Yield: 7.80%
- NSTAR (NST) | Yield: 4.60%
- Northeast Utilities (NU) | Yield: 3.80%
- Plains All American Pipeline LP (PAA) | Yield: 6.80%
- Suburban Propane Partners LP (SPH) | Yield: 7.30%

You can see the entire Dividend Stock Idea List here. Remember, not every stock listed here is a great dividend investment, but virtually all great dividend investments are on this list.

Full Disclosure: Long CLX, KO, EMR, JNJ, MCD, PG, WMT, CVX, NUE. See a list of all my income holdings here.

(Photo Credit)

Comparing Berkshire Hathaway’s (BRK.A) December 31, 2008 13-F with its March 31, 2009 13-F, I made the following observations for Q1/2009:

• BRK didn’t add any new positions to its portfolio
• BRK didn’t fully liquidate any positions in its portfolio
• BRK added shares in seven stocks: BNSF Railway (BNI), Union Pacific (UNP), Wells Fargo (WFC), U.S. Bancorp (USB), Johnson & Johnson (JNJ), and Nalco Holding Company (NLC)
• BRK reduced shares in four stocks: CarMax (KMX), ConocoPhillips (COP), Costco Wholesale Corporation (COST) and Constellation Energy Group, Inc. (CEG)

Of the stocks held in BRK’s 13-F portfolio, the following ones are either held in my income portfolio or are on my watch list of dividend stocks:

Coca Cola (KO) – Yield 3.34% – Analysis
The Coca-Cola Company is the largest manufacturer, distributor and marketer of nonalcoholic beverage concentrates and syrups in the world.

Johnson & Johnson (JNJ) – Yield 3.55% – Analysis
Johnson & Johnson is engaged in the research and development, manufacture and sale of a range of products in the healthcare field.

Kraft Foods (KFT) – Yield 4.44% – Analysis
Kraft is engaged in manufacturing and marketing packaged food products, including snacks, beverages, cheese, convenient meals and various packaged grocery products.

Lowes Companies (LOW) – Yield 1.89% – Analysis
Lowe’s Companies, Inc. is a home improvement retailer.

M&T Bank (MTB) – Yield 5.57%
M&T Bank Corporation is a bank holding company. As of December 31, 2008, the Company had two wholly owned bank subsidiaries.

Procter & Gamble Co. (PG) – Yield 3.39% – Analysis
The Procter & Gamble Company is focused on providing branded consumer goods.

Wal-Mart Stores, Inc.  (WMT) – Yield 2.19% – Analysis
Wal-Mart Stores, Inc. operates retail stores in various formats worldwide.

In addition, Buffett continues to hold a position in several stocks that I sold over the last twelve months for either cutting or failing to raise their dividend. Those are:

Bank of America Corporation (BAC) – Yield 0.35%
Bank of America Corporation (Bank of America) is a bank holding company and a financial holding company.

General Electric (GE) – Yield 9.20%
General Electric Company is a diversified technology, media and financial services company.

The Home Depot, Inc. (HD) – Yield 3.89%
The Home Depot, Inc.is a home improvement retailer selling an assortment of building materials, home improvement and lawn and garden products, and provide a number of services.

SunTrust Banks, Inc. (STI) – Yield 3.04%
SunTrust Banks, Inc. is a diversified financial services holding company whose businesses provide a range of financial services to consumer and corporate clients.

U.S. Bancorp (USB) – Yield 1.04%
U.S. Bancorp operates as a financial holding company and a bank holding company. U.S. Bancorp provides a range of financial services, including lending and depository services, cash management, foreign exchange, and trust and investment management services.

It is not surprising that the most famous value investor holds several dividend stocks. Historically, stocks that pay dividends have out-performed those that don’t. When you buy dividend stocks at a discount, it’s like turbo-charging your return!

Full Disclosure: Long in JNJ, KO, MTB, PG, WMT . See a list of all my income holdings here.

I. Does The Stock Still Meet Our Investment Criteria?

Dividend investing is about about building a reliable income stream that increases each year. When an investment stops raising its dividend it is no longer providing the future income growth required by my dividend portfolio.  The stock may still be a good value, but my dividend portfolio’s primary objective is ever-increasing dividend income, not capital gains.

Obviously, the company’s future prospects would play into a decision to keep or sell. Can the company raise its dividend, albeit late,  and still preserve a year-over-year increase? Will the future earnings provide sufficient free cash flow to pay a dividend? What other obligations, such as debt, might absorb future cash flows? Is management committed to the dividend? Would you buy this stock today as an income investment? This step determines if the stock is a candidate for a sale.

II. Are There Better Alternatives Available?

Once the stock has been identified as a candidate for a sale, the question then becomes is there something out there that is better? Don’t forget in determining the market value of a stock, the market considers any known “bad news” about about a company.  So after the bad news is out and the company freezes the dividend, the price may drop and increase the effective yield on the stock. Yield on cost is not relevant when considering a sale.

The current price and current yield are what you will receive and give up when selling a stock. With the cash received is there another stock that would be an “upgrade” from the one you are selling? What does its future prospects look like? Will the new stock replace the dividend income lost from the one sold? What does its debt and cash flow look like? Will it continue to grow its dividend in the future? Is it a more riskier stock?

If in answering these questions you determine the stock should be sold, then you pass step two. At this point, you should sell the stock that froze its dividend and purchase the one you identified in step two.

A Real-World Example

I am holding three stocks with frozen dividends. Last week I spent some time analyzing one of them – Home Depot (HD).  Its quarterly dividend has been frozen at $0.225/share since November 2006. Let’s run it through the two-step process and see what happens.

I. Does The Stock Still Meet Our Investment Criteria? – Home Depot (HD)

• Can the company raise its dividend, albeit late,  and still preserve a year-over-year increase? No, the annual dividend was $0.90/share in 2007 and 2008.
• Will the future earnings provide sufficient free cash flow to pay a dividend? Not easily. HD’s 2008 free cash flow was $2.2 billion while it dividend was $1.7 billion.
• What other obligations, such as debt, might absorb future cash flows? HD has been increasing its debt over the last several years. In 2006, HD’s total debt was $4.1 billion. At the end of 2008, HD’s debt has nearly tripled to $11.4 billon.
• Is management committed to the dividend? This is subjective, but given the above it will be hard to increase the dividend in the near-term.
• Would you buy this stock today as an income investment? Definitely not!

Based on Step I, HD is a candidate for a sale. Let’s take it through step 2.

II. Are There Better Alternatives Available? – Home Depot (HD)

On the day I was evaluating HD, its current yield was 3.52%. Good, but not great when compared to companies with a similar yield and growing their dividends. So the question is, “If I sold HD, is there another stock that would be an upgrade?”  Over the last several weeks I have looked at three companies the piqued my interest. Let’s compare them to HD:

1. Genuine Parts Co. (GPC) – [Recent Analysis]

• What does its future prospects look like? The economic downturn has left GPC struggling in some areas, but its management has done an excellent job managing the company for cash.
• Will the new stock replace the dividend income lost from the one sold? With a current yield in excess of 4.5%, GPC could more than replace HD’s lost income.
• What does its debt and cash flow look like? GPC ended 2008 with a low debt to capital of 17.7%. Its 2008 free cash flow of $425 million was down from the 2007 record level of $526 million, but with little debt, the $425 is more than adequate to cover the annual $252 million dividend.
• Is it a more riskier stock? With its strong balance sheet and cash flows, GPC is less risky.
• Will it continue to grow its dividend in the future? For the 53rd consecutive year, GPC raised its dividend in March 2009.  It appears to have the financial ability to sustain increases going forward.

2. General Dynamics Corp. (GD) – [Recent Analysis]

• What does its future prospects look like? Much of GD’s work is tied to long-term defense contracts. Its business jet segment has suffered some.
• Will the new stock replace the dividend income lost from the one sold?  With a current yield of 3.27%, GD’s income will be slightly less than HD’s, but with a dividend growth rate of 11% it could surpass HD in one year.
• What does its debt and cash flow look like? GD ended 2008 with $3.1 billion in debt, up from the $2.8 billion in 2007. Its 2008 free cash flow of $2.6 billion was at a record level and is more than adequate to cover the annual $533 million dividend.
• Is it a more riskier stock? No, with its strong cash flows and debt to capital of 24%, GD is better positioned than HD to weather the downturn.
• Will it continue to grow its dividend in the future? No reason to believe it won’t.

3. Abbott Laboratories (ABT) – [Recent Analysis]

• What does its future prospects look like? Like all pharmaceutical companies, ABT is facing challenges to their branded patents, drug development and regulatory issues. However, they have a good pipeline and have diversified their business, thus they appear to be in a better position than most of their peers. Near-term, the economic downturn should affect them less than HD.
• Will the new stock replace the dividend income lost from the one sold? With a current yield in excess of 3.6%, ABT will replace HD’d lost income.
• What does its debt and cash flow look like? At 40% ABT’s debt to total capital is a little higher than the 35% I like to see. However, it is moving in the right direction. ABT ended 2008 with $11.4 billion in debt, down from the $12.2 billion in 2007. Its record 2008 free cash flow of $6.1 billion was up $2.5 billion from 2007, and is more than adequate to cover the annual $2.2 million dividend.
• Is it a more riskier stock? No. ABT with its strong cash flows should be able to pay its dividend and pay down debt with the cash left over. I consider ABT’s near-term prospects better than HD’s.
• Will it continue to grow its dividend in the future? No reason to believe it won’t.

In answering the above questions, I was confident that either GD or ABT would be an excellent replacement for HD. Going into April, GPC was my favorite, but it was disqualified based on its valuation.

I had pegged GPC as a stock to purchase in April. I opted to defer a month and wait until their earnings release on April 16th.   Last week GPC reported 11% lower sales and 28% lower income. So why did their stock jump nearly 10% that day? First, they beat analysts prediction by $0.07/share. Secondly, and more importantly to me, they increased free cash flow by $10.6 million, or 8.6%. Management judiciously managed working capital and watched capital spending – signs of good management. Unfortunately, after its run-up, GPC’s stock price was was trading well in excess of my buy price of $31.06. For now, I will leave GPC on my watch list.

Taking into account all the above, I sold HD and purchased ABT.

Full Disclosure:  Long ABT

I am not ready to call a bottom, but recently there has been some encouraging news. First, the Commerce Department reported housing starts jumped 22% in February to a seasonally adjusted annual rate of 583,000 from a revised 477,000 in January. This was the biggest percentage gain in 19 years. Single-family home construction  increased 1.1% last month, and new construction of multi-unit buildings surged 80%. Building permits rose 3% in February, according to the Commerce Department report, to an annual rate of 547,000. Building permits are considered a reliable indicator of future activity in construction. This should be good news for homebuilders such as DR Horton Inc. (DHI), Toll Brothers, Inc. (TOL) and  Pulte Homes, Inc. (PHM) who have seen their share prices collapse over the last 18 months.

Though some economists are inclined to write this off as a weather-related fluke, one homebuilder is saying that conditions are improving slightly in the industry. “Traffic is definitely up, and the number of contracts for houses has doubled on a per-month basis since October,” said Ara Hovnanian, CEO of the homebuilding company Hovnanian (HOV).

Another sign of the thaw came March 17th when an analyst upgraded home improvement retailers Home Depot Inc. (HD) and Lowe’s Cos. ( LOW) citing the HD’s cost-control efforts and the LOW’s potential for expansion as reasons. Home Depot’s cost control efforts, fewer store openings and strong free cash flow helped the company deal with the troubled housing market. “Home Depot is demonstrating strong capital discipline. The company is spending cash wisely and only opening 12 new stores this year,” Binder wrote in a note to clients.

In another note, Binder said Lowe’s may be able to gain ground when people start looking forward to new store openings again. “While it doesn’t feel like we need any more home improvement stores, Lowe’s has half the number of stores Home Depot has in many major markets and convenience matters in this business. In other words, the company could get credit again at some point for having more unit growth opportunities relative to Home Depot. While spring selling will give us a better feel for inventory levels during prime selling season, we are encouraged by greater affordability and possible improvement in banks willingness to lend as bank balance sheets see some repair.”

We must continue to cautiously manage our portfolios in this downturn, while keeping a watchful eye on our surroundings. Signs of new life make it easier for long-term investors to stand firm in their convictions.

Full Disclosure: Long HD

(Photo Credit)

References:
- Is a housing bottom in sight?
- Ahead of Bell: Lowe’s, Home Depot upgraded

~

The “%” column is the percentage decrease between the “Sell Price” and “Recent Price”.  As you can see, each of the stocks continued to fall after it was sold. That adds substantive evidence that my sell after a dividend cut rule is the correct thing to do. With that said, I have begun to question if there were other indicators that should have led me to an earlier sale. Four of the above stocks have one other thing in common – they froze their dividend before cutting it. The table below shows those stocks and the price on the dividend freeze date (declaration date), along with the three stocks I currently hold with a frozen dividend:

~

The “Freeze Price” is the closing price the first trading day after the dividend freeze was announced. The “Sell Price” for the first four (those that I have already sold), is the actual price I sold it for and for the three I still hold it is a recent price. Based on the above, it appears the prudent thing to do would be to sell a stock after it freezes its dividend. Like a dividend cut, an investment with a froze dividend is no longer aligned with my dividend portfolio’s goal of building an ever-increasing source of dividend income.

Care should be taken in considering that not only have the above stocks fell over the last year or so, but virtually every other stock has fell. So what appears to be hard and fast rules in this market, will need to be evaluated under different phases of the cycle. But for now, selling after a dividend cut or a dividend freeze appears to be a prudent rule to follow. However, I do not see the dividend freeze rule as stringent as the dividend cut rule. Each situation needs to be evaluated and sometimes an immediate sale is not warranted. Considering all this, I would phrase my dividend rule as such:

When an individual stock held as a dividend investment freezes its dividend, this is a strong sell indicator. The specific facts and circumstances should be immediately evaluated and continuously monitored until the stock is either sold or it increases its dividend.

If it is decided not to sell the stock, the pressure to sell should increase as time passes.  Another strong indicator to sell would be if the dividend freeze persists long enough to incur a flat dividend year-over-year. Dividend freezes need to be monitored closely. In many instances they are the first step to a dividend cut.

Full Disclosure: Long HD, MTB, RY

The Good

As you might guess, these dividend stocks that are doing exactly what they should do – consistently raising their dividends each year in spite of troubled economic times. Some of these companies are in sectors that are less affected by the economic downturn, but they have one thing in common, they are well-managed by executives that understand the importance of growing the companies dividends. Here are some examples of these companies:

• Johnson & Johnson (JNJ) in May 2008 increased its quarterly dividend 10.8% to $0.46/share
• Kimberly-Clark Corporation (KMB) in March 2008 increased its quarterly dividend 9.4% to $0.58/share
• McDonald’s Corp. (MCD) in November 2008 increased its quarterly dividend 35.1% to $0.50/share
• Pepsico, Inc. (PEP) in June 2008 increased its quarterly dividend 13.3% to $0.425/share
• Procter & Gamble Co. (PG) in April 2008 increased its quarterly dividend 14.3% to $0.40/share
• Wal-Mart Stores Inc. (WMT) in April 2008 increased its quarterly dividend 8.2% to $0.238/share

The Bad

Companies that held their dividends flat. Dividend investors are keying on companies that can consistently raise their dividends year after year. Sometimes a company can’t do this this. Instead of cutting the dividend, they hold it flat and try to weather the economic storm. This may not always be a bad thing, because it shows that management understands the importance of maintaining its dividend. Many dividend investors, myself include, may overlook a single flat year. Here are several companies that missed their last dividend increase:

• General Electric Co. (GE) last raised its dividend December 2007
• The Home Depot, Inc (HD) last raised its dividend November 2006
• Pfizer Inc. (PFE) last raised its dividend November 2007
• US Bancorp (USB) last raised its dividend December 2007

Each of the above stocks has been classified as On The Shelf. That means they will be set aside within my income portfolio with no additional purchases made until its outlook improves or deteriorates to the point it should be sold. As I was writing this article, PFE announced Monday that it was going to slash its second quarter dividend 50%. I immediately sold the stock after its dividend cut.

The Ugly

Companies that cut their dividends. Fourth quarter 2008 was the worst period for dividend cuts since 1956 when Standard & Poor’s started keeping records. Unfortunately, the carnage may not be over. UBS Securities strategist Thomas Doerflinger estimates that S&P 500 dividends per share will drop an additional 8% in 2009. That would be the largest decline since the Great Depression and only the eighth time since 1942 that dividends fell in consecutive years. Here are several companies that contributed to the 2008 decline:

• Bank of America Corporation (BAC) first dropped its dividend in December 2008
• Fifth Third Bancorp (FITB) first dropped its dividend in June 2008
• KeyCorp (KEY) first dropped its dividend in August 2008
• Regions Financial Corp. (RF) first dropped its dividend in September 2008

Long-term, the best companies to add to our dividend portfolios are those that will continue raising their dividends even during economic downturns. These stocks tend to have conservative payouts less than 50%, which allows them to maintain their dividends during the tough times. They also have growing sales and earnings – you can’t continue to pay higher dividends unless you have the earnings to back it up.

Full Disclosure: Long JNJ, KMB, MCD, PEP, PG, WMT, GE, HD, USB

The following stocks in my portfolio have froze their dividends at the current rate per share (yields as of 10/24/08):

General Electric Co. (GE) – 6.95%
Current Dividend: $0.31/share (last 5 quarters)
Previous amount: $0.28/share (September 2007)
2007 Dividend: $1.15
2008 Estimated: $1.24
Last Chance to raise: Q4/2009

The Home Depot, Inc (HD) – 4.86%
Current Dividend: $0.225/share (last 8 quarters)
Previous amount: $0.15/share (September 2006)
2007 Dividend: $0.90
2008 Estimated: $0.90
Last Chance to raise: Q4/2008

RBC Royal Bank (RY) – 4.41%
Current Dividend: C$0.50/share (last 5 quarters)
Previous amount: C$0.46/share (August 2007)
2007 Dividend: C$1.88
2008 Estimated: C$2.00
Last Chance to raise: Q4/2009

Bank of America (BAC) was also in this group until it decided to cut it dividend earlier this month, at which point I sold it.

When a company decides to freeze its dividend at the current rate per share, the first thing I do is put the stock “On The Shelf“. This is a place I can set the security aside within my income portfolio with no additional purchases made until its outlook improves and it comes off the shelf, or deteriorates to the point it should be sold.

I look at dividends on an annual basis. This adds a degree of flexibility and opportunities for the company to hold the dividend flat for a period of time yet continue its string of annual increases. For example, if HD were to declare a dividend of $0.235/share in the fourth quarter of this year, it would show a year-over-year increase from 2007 ($0.91 vs. $0.90). I would then pull it off the shelf and move forward. I have listed above the last chance each stock has to increase its dividend and continue its year-over-year string.

If a company leaves its dividend flat year over year, the decision is not as clear-cut as a company that cuts its dividend. I will look at alternative investments, along with the company’s current yield and future outlook. There is something to be said for a company that would not cut its dividend during difficult times.

Disclosure: Long in HD, GE and RY.