Here are several companies looking to increase their long-term returns by raising their cash dividends:

Intel (INTC) is the world’s largest manufacturer of microprocessors, the central processing units of PCs, and also produces other semiconductor products. November 16th, the company raised its quarterly dividend 12.5% to $0.1575/share. Paul Otellini, Intel president and CEO commented “With one of the highest dividend yields in the technology industry, the dividend increase is another sign of our confidence in business prospects going forward.” The yield based on the new payout is 3.26%.

Lancaster Colony (LANC) manufactures and markets consumer products in two  segments: Specialty Foods, and Glassware and Candles. November 16th the company increased its dividend 5.3% to $0.30/share. The payable is payable December 31, 2009 to shareholders of record on December 10, 2009. The ex-dividend date is December 8. LANC is a Dividend Achiever and has increased its dividend for 47 consecutive years. The yield based on the new payout is 2.41%.

Brown-Forman (BF.A) on November 16 raised its dividend 4.3% to $0.30/share. Stockholders of record on December 7, 2009 will receive the cash dividend on January 4, 2010. This is Brown-Forman’s 64th consecutive year of quarterly dividends and the 26th consecutive year it has increased the annual dividend. The yield based on the new payout is 2.23%.

Sysco (SYY) is the largest U.S. marketer and distributor of foodservice products. November 17th the company boosted its dividend to $0.25/share. The dividend is payable on January 22, 2010, to common shareholders of record at the close of business on December 31, 2009. The ex-dividend date is December 29, 2009. LANC is a Dividend Achiever and has increased its dividend for 39 consecutive years. The yield based on the new payout is 3.66%.

Royal Gold (RGLD) is the largest U.S.-based company engaged in the acquisition and management of precious metal royalty interests. November 18th the company increased its quarterly dividend 13% to $0.09/share. The dividend is payable January 15, 2010, to shareholders of record at the close of business on January 4, 2010. The ex-dividend date is December 31, 2009. The yield based on the new payout is 0.68%.

PennantPark (PNNT) specializes in direct and mezzanine investments in middle-market companies. November 18th the company raised its quarterly dividend 4.2% to $0.25/share.The dividend is payable on January 4, 2010 to stockholders of record as of December 24, 2009. The ex-dividend date is December 22. The yield based on the new payout is 11.96%.

Harsco (HSC) is a industrial service provider and manufacturer has operations in steel
mill services and access services, as well as construction. November 19th the company boosted it quarterly dividend for the 16th consecutive year to $0.205/share. The dividend is payable February 16, 2010 to Harsco stockholders of record as of January 15, 2010. The ex-dividend date is January 13. The dividend yield on the new payout is 2.5%. LANC is a Dividend Achiever and has increased its dividend for 19 consecutive years. The yield based on the new payout is 2.52%.

NSTAR (NST) was created through the 1999 merger of BEC Energy and Commonwealth Energy System. November 19th the company increased its quarterly dividend 6.7% to $0.40/share.The payable February 1, 2010 to shareholders of record as of January 8, 2010. The ex-dividend date is January 6. The yield based on the new payout is 4.98%.

Laclede Group (LG) distributes natural gas on a retail basis in St. Louis and nearby suburban areas. November 19th the company raised its quarterly dividend to $0.395/share. The dividend will be payable on January 4, 2010, to shareholders of record on December 11, 2009. The ex-dividend date is December 9, 2009. Yield on the dividend is 5%. The yield based on the new payout is 5.00%.

Bob Evans Farms (BOBE) owned and operated 571 Bob Evans Restaurants & 132 Mimi’s Cafes. November 19th the company announced a 12.5% increase in the quarterly cash dividend to $0.18/share. The dividend is payable on Dec. 15 to stockholders of record at the close of business on Dec. 4. The yield based on the new payout is 2.83%.

Nike (NKE) is the world’s leading designer and marketer of high-quality athletic
footwear, athletic apparel, and accessories. November 19th, the company increased its quarterly dividend 8% to $0.27/share. The dividend is payable on January 4, 2010 to shareholders of record at the close of business on December 7, 2009. The yield based on the new payout is 1.70%.

When looking for stocks with growing dividends, longevity of consecutive increases is important.  For a list of stocks with a long string of consecutive dividend increases, see this list.

Full Disclosure: Long INTC, SYY. See a list of all my income holdings here.

(Photo Credit)

To identify these stingy companies, I used the following criteria on the companies I track:

• A Free Cash Flow Dividend Payout (FCFp) of 40% or less. This means that 60% of the company’s cash, after operating expenses, is going elsewhere.
• A sum of Debt to Total Capital (Debt) + FCFp of less than 50%. This should help weed out the companies holding the cash to pay interest.
• Trailing 12-month Free Cash Flow per share is greater than an average of the last 3 years. This weeds out companies where cash flow is decreasing.
• Cash on the balance sheet in excess of short-term debt. This weeds out companies that may have an immediate debt-servicing need for the cash.

Here are seven stocks out of the 100 that I track meeting the above criteria:

Aflac Incorporated (AFL) – 4-Stars – Analysis
Aflac Incorporated engages in the marketing and sale of supplemental health and life insurance plans in the United States and Japan.

• FCF Payout: 10%
• Debt + FCFp: 34%
• Cash/ST Debt: 11.5 Times

C.R. Bard Inc. (BCR) – 4-Stars
Bard (C.R.) Inc is a diversified producer of therapeutic and diagnostic medical devices has exposure to the vascular, urology, oncology, and specialty surgical markets.

• FCF Payout: 13%
• Debt + FCFp: 19%
• Cash/ST Debt: No ST Debt (4.1 Times LT Debt)

Franklin Resources Inc. (BEN) – 2 Stars
Franklin Resources Inc. is one of the world’s largest asset managers, serving retail, institutional and high-net-worth clients.

• FCF Payout: 17%
• Debt + FCFp: 31%
• Cash/ST Debt: 91.2 Times

Donaldson Company (DCI) – 3 Stars – Analysis
Donaldson Company operates as a worldwide manufacturer of filtration systems and replacement parts.

• FCF Payout: 17%
• Debt + FCFp: 49%
• Cash/ST Debt: 1.6 Times

General Dynamics (GD) – 2 Stars – Analysis
General Dynamics is the world’s sixth largest military contractor and also one of the world’s biggest makers of corporate jets.

• FCF Payout: 25%
• Debt + FCFp: 48%
• Cash/ST Debt: 1.2 Times

Lancaster Colony (LANC) – 2 Stars
Lancaster Colony is a diversified Ohio-based company manufactures and markets consumer products; glassware and candles; and automotive accessories.

• FCF Payout: 25%
• Debt + FCFp: 29%
• Cash/ST Debt: No ST Debt (1.3 Times LT Debt)

Walgreen Co. (WAG) – 3 Stars – Analysis
Walgreen Co is the largest U.S. retail drug chain in terms of revenues. It sells prescription and non-prescription drugs, beauty care, personal care, household items, candy, photofinishing, greeting cards, seasonal items and convenience foods.

• FCF Payout: 28%
• Debt + FCFp: 42%
• Cash/ST Debt: 230 Times

You could view this from a positive perspective and say the above dividends should be very safe and the companies are in an excellent position to continue to raising them each year.  In dividend investing, cash is king, but at some point management has to be willing to share it with the company’s owners.

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

In an effort to narrow down the list, I considered what criteria makes an Elite Dividend company. Here is what I came up with (financial data from morningstar.com):

A Long Track Record Of Consecutive Dividend Increases: Aristocrats and Champions have increased their dividends for 25 consecutive years, while Achievers have done so for 10 years. The quickest way to narrow the list down was only include companies with 35 or more years of consecutive dividend increases. This reduced the population to 65 companies.

Ability To Generate Positive Free Cash Flows: To have cash available for dividends, a company must have cash left over after paying the operating expenses and normal capital expenditures. For this I looked for companies that had positive free cash flow for the last 10 years.

Free Cash Flow Sufficient To Pay The Dividend: Free cash flow can be positive, but still not enough to cover an increasing dividend. To ensure adequate coverage, I screened for companies with a 60% or less Free Cash Flow payout ratio.

Low Debt: Dividends paid out of Free Cash Flow must compete for other needs of the business such as interest and debt payments.  Lower debt and interest requirements provide more cash for dividend payments. For this item, I eliminated all companies that had a debt to total capital percent in excess of 35%.

Low Risk: An Elite Dividend company will provide you a superior return without subjecting your investment to undue risk. My usual measure of risk indirectly incorporates the stock’s current valuation. I wanted this list to be valuation independent (e.g. a great stock could be on the list, but not be a buy because it is overvalued). For this measure I opted to use S&P’s Qualitative Risk Assessment. This is described by S&P as “the equity analyst’s view of a given company’s operational risk, or the risk of a firm’s ability to continue as an ongoing concern. The Qualitative Risk Assessment is a relative ranking to the S&P U.S. STARS universe, and should be reflective of risk factors related to a company’s operations, as opposed to risk and volatility measures associated with share prices. The rankings include Low, Medium and High.” I only included companies with a Low risk rating.

My Elite Dividends List that started with 319 companies, then dropped to 65 companies now after considering all the above, it is left with the following six companies:

Nucor Corp. (NUE) – Recent Analysis

• Consecutive Dividend Increases: 35
• Debt % of Total Capital: 29.2%
• Free Cash Flow Payout: 22.9%

Illinois Tool Works (ITW) – Recent Analysis

• Consecutive Dividend Increases: 45
• Debt % of Total Capital: 32.4%
• Free Cash Flow Payout: 29.9%

Johnson & Johnson (JNJ) – Recent Analysis

• Consecutive Dividend Increases: 47
• Debt % of Total Capital: 21.8%
• Free Cash Flow Payout: 42.7%

3M Company (MMM) – Recent Analysis

• Consecutive Dividend Increases: 51
• Debt % of Total Capital: 17.6%
• Free Cash Flow Payout: 40.9%

Procter & Gamble Co. (PG) – Recent Analysis

• Consecutive Dividend Increases: 52
• Debt % of Total Capital: 34.5%
• Free Cash Flow Payout: 37.7%

Genuine Parts Co. (GPC) – Recent Analysis

• Consecutive Dividend Increases: 53
• Debt % of Total Capital: 17.7%
• Free Cash Flow Payout: 59.4%

This is not a buy list. As noted above, the Elite Dividend List ignores valuation and other factors you must consider before purchasing one of these companies. Also, there were some very good companies that were close, but came up slightly short in just one category such as:

• Coca-Cola Company (KO)  had a Free Cash Flow payout % of 61.0% vs. a 60% target
• Sysco Corp. (SYY) had a debt to total capital percentage of 37.5% vs. a 35% target
• PepsiCo Inc. (PEP) had a debt to total capital percentage 40.2% vs. a 35% target
• Lancaster Colony Corp. (LANC) did not have an S&P Qualitative Risk Assessment
• H.B. Fuller Company (FUL) had an S&P Qualitative Risk Assessment of Medium vs. a Low target
• Wal-Mart Stores Inc. (WMT) had a debt to total capital percentage of 39.9% vs. a 35% target

Full Disclosure: Long NUE, ITW, JNJ, MMM, PG, KO, SYY, PEP, WMT (my income holdings)

Here are several stocks that are trying to stay in good favor with their shareholders by raising their cash dividends:

• RLI Corp. (RLI) Boosts Qtr. Dividend by 4% to $0.26/Share (1.87%)
• Lancaster Colony (LANC) Increases Qtr. Dividend by 1.7% to $0.285/Share (3.96%)
• SkyWest (SKYW) Raises Dividend Qtr. Dividend by 33% to $0.04/Share (1.24%)
• DHT Maritime (DHT) Raises Qtr. Dividend by % 20 to $0.30/Share (25.21%)
• Roper Industries (ROP) Boosts Qtr. Dividend 13.8% to $0.0825/Share (0.86%)
• Sysco (SYY) Raises Qtr. Dividend by 9% to $0.24/Share (3.91%)
• NSTAR (NST) Increases Qtr. Dividend by 7% to $0.35/Share (4.29%)
• The Laclede Group (LG) Increases Qtr. Dividend by 2.7% to $0.385/Share (3.08%)

After running these companies through my D4L-PreScreen.xls model, RLI with a NPV of MMA Differential of $3,404 and 33 consecutive year record of raising dividends certainly qualifies for a more complete evaluation. DHT has only paid a dividend since 2006. NST had positive NPV of MMA Differentials, but below the level that would warrant a more detailed evaluation. SYY was reviewed on Wednesday.

Disclosure: Long SYY.

(Photo: Steve Woods)