1. Declining Shares

Many companies sell stock to raise cash. The important question is what is the company going to do with the cash? Is it for an acquisition or “general corporate purposes?” The latter is code for the business is not generating enough cash to stay afloat on its own. I am wary of a company that consistently has more shares outstanding in the current year when compared to the prior year. As I enter updates to my database, equal or lower shares outstanding is a sign of a healthy business.

2. Declining Debt

When companies need to raise cash and selling shares is not a good option, they often will issue debt. Once again, the important question is what is the company going to do with the cash? Like issuing shares, debt for a strategic acquisition is much more palatable than for “general corporate purposes.” I am wary of a company that consistently has more debt outstanding than the year before. As I enter updates to my database, I make note of companies with a declining debt balance and see that as a sign of a healthy business.

3. Rising Equity

Changes in shareholder’s equity are a result of earnings, dividends paid, treasury stock purchased, stock options exercised and stock issued. If shares outstanding aren’t increasing, and equity is rising then the business is generating sufficient earnings to cover dividends and share repurchases. Increasing the value of the company by running the business well is a sign of a healthy company.

4. Rising Free Cash Flow/Share

Ultimately, we want our investments to generate more free cash flow so they can pay us higher dividends. Free cash flow is an important metric in that it excludes cash generated from issuing stock or issuing debt or selling off parts of the business. Free cash flow is limited to only the cash generated from running the business.

Dividend Stocks Headed In The Right Direction

Combining the equity and debt metrics, I looked for companies with a declining Debt to Total Capital ratio, and combining the free cash flow and shares outstanding metrics, I looked for a rising free cash flow per share. Below are several companies I noted that exhibited each of the above characteristics:

Automatic Data Processing Inc. (ADP) is one of the world’s largest independent computing services companies, providing a broad range of data processing services.
Debt to Total Capital | 2005: 1%, TTM: 1%
Free Cash Flow/Share | 2005: $2.10, TTM: $3.06
Yield: 2.84%

Cullen/Frost Bankers, Inc. (CFR) is one of the largest multi-bank holding company headquartered in Texas, has more than 110 offices in various cities in the state.
Debt to Total Capital | 2005: 30%, TTM: 15%
Free Cash Flow/Share | 2005: $2.13, TTM: $5.23
Yield: 2.98%

Erie Indemnity Co. (ERIE) provides sales, underwriting, and policy issuance services to the policyholders of Erie Insurance Exchange in the United States.
Debt to Total Capital | 2005: 0%, TTM: 0%
Free Cash Flow/Share | 2005: $4.33, TTM: $6.93
Yield: 2.77%

Genuine Parts Co. (GPC) is a leading wholesale distributor of automotive replacement parts, industrial parts and supplies, and office products.
Debt to Total Capital | 2005: 16%, TTM: 15%
Free Cash Flow/Share | 2005: $2.03, TTM: $3.57
Yield: 2.97%

Owens & Minor Inc. (OMI) is a leading domestic distributor of medical and surgical supplies to the acute care market, a health care supply chain management company, and a direct-to-consumer (DTC) supplier of testing and monitoring supplies for diabetes.
Debt to Total Capital | 2005: 29%, TTM: 20%
Free Cash Flow/Share | 2005: $1.75, TTM: $3.08
Yield: 2.25%

The Procter & Gamble Company (PG) is a leading consumer products company that markets household and personal care products in more than 180 countries.
Debt to Total Capital | 2005: 38%, TTM: 33%
Free Cash Flow/Share | 2005: $2.65, TTM: $3.46
Yield: 3.00%

RPM International Inc. (RPM) makes specialty coatings and products for the structural waterproofing and corrosion control markets, as well as products for the consumer, do-it-yourself, and hobby markets.
Debt to Total Capital | 2005: 44%, TTM: 43%
Free Cash Flow/Share | 2005: $0.81, TTM: $1.34
Yield: 3.47%

J.M. Smucker Co.’s (SJM) products include coffee, fruit spreads, peanut butter, shortening and oils, ice cream toppings, health and natural foods, and beverages. The Folgers coffee business was acquired in November 2008.
Debt to Total Capital | 2005: 21%, TTM: 19%
Free Cash Flow/Share | 2005: $1.84, TTM: $3.69
Yield: 2.61%

Sonoco Products Co. (SON) makes paper and plastic packaging products serves various industries and markets in more than 85 countries.
Debt to Total Capital | 2005: 38%, TTM: 29%
Free Cash Flow/Share | 2005: $0.98, TTM: $1.68
Yield: 3.10%

Suburban Propane Partners LP (SPH) is a limited partnership that markets propane gas and other refined fuels to residential, commercial, industrial, and agricultural customers.
Debt to Total Capital | 2005: 88%, TTM: 44%
Free Cash Flow/Share | 2005: $0.33, TTM: $3.67
Yield: 5.88%

AT&T Inc. (T) provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006.
Debt to Total Capital | 2005: 42%, TTM: 39%
Free Cash Flow/Share | 2005: $2.10, TTM: $2.50
Yield: 5.88%

V.F. Corp. (VFC) is a global apparel company, with leading shares in denim and daypacks. It is transforming itself into a designer and marketer of lifestyle apparel brands.
Debt to Total Capital | 2005: 22%, TTM: 20%
Free Cash Flow/Share | 2005: $4.11, TTM: $9.46
Yield: 2.71%

Verizon Communications Inc. (VZ) offers wireline, wireless and broadband services primarily in the northeastern United States. It acquired MCI Inc in 2006 and has since sold or spun off non-core assets. Alltel was acquired in early 2009.
Debt to Total Capital | 2005: 50%, TTM: 39%
Free Cash Flow/Share | 2005: $2.37, TTM: $6.07
Yield: 5.22%

Businesses can pay dividends with cash generated from many sources. They can generate cash by issuing shares, which dilutes our ownership. They can generate cash by issuing debt, which burdens the company with interest payments. Or, they can generate cash by running the business well, which neither dilutes the current shareholders’ interest or burdens them with future cash payments. Which would you rather have?

Full Disclosure: Long ADP, GPC, OMI, PG, T. See a list of all my income holdings here.

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(Photo Credit)

Linked here is a detailed quantitative analysis of AT&T Inc. (T). Below are some highlights from the above linked analysis:

Company Description: AT&T Inc. provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006.

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

T is trading at a discount to only 3.) above. Since T’s tangible book value is not meaningful, a Graham number can not be calculated. The stock is trading at a 7.2% premium to its calculated fair value of $26.52. T did not earn any Stars in this section.

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%

T 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%. T earned a Star for having an acceptable score in at least two of the four Key Metrics measured. The company has paid a cash dividend to shareholders every year since 1984 and has increased its dividend payments for 27 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

T earned a Star in this section for its NPV MMA Diff. of the $1,224. This amount is in excess of the $800 target I look for in a stock that has increased dividends as long as T has. The stock’s current yield of 5.91% exceeds the 3.9% estimated 20-year average MMA rate.

Memberships and Peers: T is a member of the S&P 500 and a member of the Broad Dividend Achievers™ Index. The company’s peer group includes: CenturyLink, Inc. (CTL) with a 6.5% yield, Qwest Communications International Inc. (Q) with a 4.3% yield and Verizon Communications Inc. (VZ) with a 5.4% yield.

Conclusion: T did not earn any Stars 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 three Stars. This quantitatively ranks T as a 3 Star-Hold.

Using my D4L-PreScreen.xls model, I determined the share price would need to increase to $32.81 before T’s NPV MMA Differential decreased to the $800 minimum that I look for in a stock with 27 years of consecutive dividend increases. At that price the stock would yield 5.12%.

Resetting the D4L-PreScreen.xls model and solving for the dividend growth rate needed to generate the target $800 NPV MMA Differential, the calculated rate is 0.9%. This dividend growth rate is below the 2.9% used in this analysis, thus providing a margin of safety. T has a risk rating of 1.50 which classifies it as a low risk stock.

In spite of a poor economy, T has performed well over the past year. The company should continue to see near-term gains in consumer wireless. Declines in landlines will continue to pressure T, but gains in consumer wireless and broadband should help to offset these. The company has a strong balance sheet and good free cash flow, and it enjoys brand loyalty and long-term customer relationships. I will continue to strategically increase my position in T when it is trading below my buy price of $26.52 and as my allocation allows. 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 was long in T (4.1% of my Income Portfolio). I also held a position in CTL.  See a list of all my income holdings here.

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Jon Birger at Fortune notes that there’s still a real buying opportunity in growth stocks, with this years selections slanted toward commodities. Here are the 10 picks for 2010:

Mosaic (MOS) potash production capacity has grown 10% since 2006 and is expected to increase another 60% between now and 2020. And as it rises, the company’s stock seems likely to follow. Currently yielding: 0.3%

Agrium (AGU) earnings are on pace to jump 60% in 2010, and analysts are expecting another 44% bump next year. Currently yielding: 0.1%

Analysts expect Dow‘s (DOW) 2011 earnings to be up 32% — on the heels of a 212% earnings improvement this year. (2009 was a disaster.) Best of all, Dow’s stock isn’t priced to reflect the growth company it has become. Currently yielding: 1.8%

Transocean (RIG) is well indemnified against blowout-related liability. Oil prices have risen 17% since May as global demand has rebounded to 2007 levels and production isn’t keeping up with demand. Currently yielding: 0.0%

Royal Dutch Shell (RDS-B) is a safe place to get a dividend yield. But it has a really good set of strategic initiatives going for it too. Currently yielding: 5.1%

Lennar (LEN) has a history of making lemonade from real estate lemons. During the S&L crisis in the early 1990s, it made a small fortune buying distressed properties at 30¢ or 40¢ on the dollar and then reselling them for 50¢ or 60¢. Currently yielding: 0.9%

East West Bancorp (EWBC) is now believed to be the largest Chinese-American-focused bank in the country. Americans boast a savings rate 19% higher than the national average. Currently yielding: 0.2%

Royal Caribbean (RCL) is trading at a modest 13 times 2011 earnings, but deserves a P/E closer to 17, which was Royal Caribbean’s average valuation from 1997 to 2007. Currently yielding: 0.0%

Entropic (ENTR) is priced more like a value stock: At $9 a share, it trades at 11.7 times projected 2011 earnings. Currently yielding: 0.0%

Apple (AAPL) is definitely not overpriced. Especially not for a company so well positioned in such fast-growing markets. Currently yielding: 0.0%

In selecting their best stocks for 2011, CBS Money Watch focused on value stocks and asked Tom Forester, manager of the Forester Value Fund, to come up with the “top five value stocks for 2011.” His list of companies are mostly household names whose neglect or avoidance by investors leaves them trading at bargain valuations. The list includes:

Microsoft (MSFT) has grown cheap over the years in line with the ebbing of the software maker’s reputation as an innovator. Currently yielding: 2.3%

Hewlett-Packard (HPQ) reputation has been tarnished by the antics of some of the bosses making their way through the executive suite’s revolving door. The result is a PE ratio of about 7.5 times next year’s earnings as investors continue to shun the stock. Currently yielding: 0.8%

Chevron (CVX) is the cheapest of the oil super-majors and is more sensitive than its rivals to the price of oil because more of its business is related to production rather than activities like refining. Currently yielding: 3.3%

CVS Caremark (CVS) trading at roughly 11 times next year’s earnings, investors seem to be ignoring CVS’s valuable pharmacy benefit management business. Currently yielding: 1.0%

Best Buy (BBY) should benefit from strong holiday sales of gadgetry like iPads, Kinect Xboxes, phones and big-screen TVs; and should continue to get a boost from the demise of Circuit City. Currently yielding: 1.7%

Greg Sushinsky in an article on Investopedia selected a sampler of some potent large-cap stocks which pay attractive dividends. Here are his selections and reasons for choosing them:

Verizon Communications (VZ) is expected to offer iPhones next year. Estimates are that it may land as many as 10 million activations when Verizon Wireless begins selling the iPhone. This will be a healthy addition to Verizon’s revenue stream. Currently yielding: 5.6%

Merck (MRK). underlying business has healthy margins and cash flow generation. Even if you scale back the revenue and earnings projections the stock looks cheap. Currently yielding: 4.2%

Conoco Phillips (COP) and other integrated oil company stocks tailed off after the BP (BP) oil spill in the Gulf of Mexico. Currently it sells for less than nine times earnings. Currently yielding: 3.4%

Unilever Plc (UL) has a wide mix of businesses, and the stock got a recent enthusiastic analyst upgrade. The stock is a bit pricey now, but it is projected to continue its earnings rebound. Currently yielding: 3.8%

Coca Cola (KO) continues to grow its earnings despite economic headwinds. The underlying growth and value of the company makes its dividend as solid and stable as any. Currently yielding: 2.8%

As a long-term, buy-and-hold income investor, many of the stocks in the above lists don’t meet my criteria for a buy. Dividend investors are looking for stocks that will perform well over the long run, not just 2011. As such, I prefer to start with this list of stocks.

Full Disclosure: Long CVX, KO. See a list of all my income holdings here.

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(Photo Daniela Baack)

Start With a High-Quality List of Stocks

If you are looking for a higher-quality dividend growth stock, you have to go where they can be found. For me this is my Stock Ideas page. It consists of:

S&P 500 Dividend Aristocrats: is designed to measure the performance of S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. These stocks are the best of the best – the blue blood stocks.

Broad Dividend Achievers: is comprised of select US companies with at least ten consecutive years of increasing regular dividends. US companies must be listed on the NYSE, AMEX or NASDAQ. US Companies must have a minimum average daily cash volume of US$500,000 per day for the November and December prior to each Annual Reconstitution Date.

U.S. Dividend Champions: includes companies that had paid higher dividends for at least 25 consecutive years. The list includes some smaller companies not found on the other lists. This list is maintained by The Drip Investing Resource Center and is available on their website in an Excel spreadsheet.

Look For Sustainability

High-yield isn’t free. There is usually a reason one stock’s yield is higher than another and it is normally tied to risk. With all things being equal, the income investor would always select the higher yield stock, but all things are not equal. It is our job to identify what is driving a stocks yield up and determine if we are willing to accept the additional risk. When making this decision some of the things I consider are free cash flow, debt level, business model, among others.

Higher-Yielding Stocks To Consider

Putting it all together, I have identified 11 stocks that yield at least 5% and have grown their dividends for at least 5 years. They are:

Leggett & Platt, Inc. (LEG) makes a broad line of bedding and furniture components and other home, office and commercial furnishings, as well as diversified products for non-furnishings markets.
- 5.16% Yield
- 36.76% Debt To Total Capital
- 57.89% FCF Payout
- 38 Years of Dividend Growth

Urstadt Biddle Properties (UBA) is a real estate investment trust that acquires, owns and manages commercial real estate properties primarily in the northeastern United States.
- 5.17% Yield
- 30.87% Debt To Total Capital
- 58.27% FCF Payout
- 16 Years of Dividend Growth

Hudson City Bancorp Inc. (HCBK) operates over 100 branches in the New York metropolitan area. It caters to high median household income counties and focuses on jumbo mortgage loan funding, largely through time deposits.
- 5.26% Yield
- 72.57% Debt To Total Capital
- 52.23% FCF Payout
- 10 Years of Dividend Growth

Cincinnati Financial Corp. (CINF) markets primarily property and casualty coverage. It also conducts life insurance and asset management operations.
- 5.31% Yield
- 15.05% Debt To Total Capital
- 46.87% FCF Payout
- 50 Years of Dividend Growth

PP&L Corporation (PPL) is a holding company for PPL Utilities and a utility in the U.K.
- 5.53% Yield
- 37.55% Debt To Total Capital
- 99.92% FCF Payout
- 9 Years of Dividend Growth

National Retail Properties, Inc. (NNN) invests in high-quality, freestanding retail properties subject to long-term net leases with major retail tenants.
- 5.74% Yield
- 1.92% Debt To Total Capital
- 82.18% FCF Payout
- 19 Years of Dividend Growth

Verizon Communications Inc. (VZ) offers wireline, wireless and broadband services primarily in the northeastern United States. It acquired MCI Inc in 2006 and has since sold or spun off non-core assets. Alltel was acquired in early 2009.
- 5.94% Yield
- 38.59% Debt To Total Capital
- 31.49% FCF Payout
- 6 Years of Dividend Growth

AT&T Inc. (T) provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006.
- 6.02% Yield
- 41.67% Debt To Total Capital
- 61.14% FCF Payout
- 27 Years of Dividend Growth

Suburban Propane Partners LP (SPH) markets propane gas and other refined fuels to residential, commercial, industrial, and agricultural customers.
- 6.08% Yield
- 43.49% Debt To Total Capital
- 88.83% FCF Payout
- 11 Years of Dividend Growth

Kinder Morgan Energy Partners LP (KMP) is one of the largest pipeline master limited partnerships (MLPs) in the U.S.
- 6.14% Yield
- 63.92% Debt To Total Capital
- 76.11% FCF Payout
- 14 Years of Dividend Growth

CenturyLink, Inc. (CTL) acquired larger telecom peer Embarq in a stock deal in July 2009. Combined, the company provides voice service to 6.7 million customers and Internet service to 2.4 million customers in rural towns as well as larger cities such as Las Vegas.
- 6.74% Yield
- 44.56% Debt To Total Capital
- 75.39% FCF Payout
- 37 Years of Dividend Growth

As note earlier, yield comes with a cost. Each of the above stocks carries some level of additional risk higher than the average Aristocrat, Achiever or Champion. Ideally, we will start building our income portfolios years before we need the income, but if that is not possible, diversifying and focusing on higher quality stocks should help reduce our overall portfolio risk.

Full Disclosure: Long LEG, NNN, CTL, T, CINF. See a list of all my income holdings here.

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(Photo Credit)

Below are several companies that have recently elected to send more cash to their shareholders in the form of increased dividends:

Stage Stores (SSI) operates in the U.S., offering brand name and private label apparel, accessories, intimates, home, gifts, outerwear, cosmetics & footwear. August 27th the company increased its quarterly dividend 50% to $0.075/share. The dividend is payable on September 22, 2010 to shareholders of record at the close of business on September 7, 2010. The ex-dividend date is September 3, 2010. The yield based on the new payout is 2.69%.

Golar LNG (GLNG) owns and operates a fleet of liquefied natural gas, or LNG, carriers. August 27th the company raised its quarterly dividend to $0.15/share. The record date for the dividend is September 9, 2010, ex-dividend date is September 6, 2010 and the dividend will be paid on or about September 27, 2010. The yield based on the new payout is 5.43%.

Altria Group (MO) is the largest U.S. cigarette producer. August 27th the company increased its quarterly dividend 8.6% to $0.38/share. The dividend is payable on October 12, 2010 to shareholders of record as of September 15, 2010. The ex-dividend date is September 13, 2010. MO is a Dividend Achiever and has raised its dividend for 42 consecutive years. The yield based on the new payout is 6.81%.

Harris Corp. (HRS) focuses on communications equipment for voice, data and video applications for commercial and governmental customers. August 30th the company raised its quarterly dividend 14% to $0.25/share. The dividend is payable September 17, 2010, to shareholders of record September 8, 2010, with an ex-dividend date is September 6, 2010. The yield based on the new payout is 2.38%.

HCC Insurance (HCC) is a multi-line insurer specializing in aviation, marine, medical stop-loss, offshore energy and property and casualty insurance in the U.S. and the U.K. September 1st the company increased its quarterly dividend 7.4% to $0.145/share. The dividend is payable to stockholders of record on October 1, 2010 and will be paid on or about October 15, 2010. The ex-dividend date is September 29, 2010. HCC is a Dividend Achiever and has raised its dividend for 14 consecutive years. The yield based on the new payout is 2.24%.

Verizon Communications (VZ) offers wireline, wireless and broadband services primarily in the northeastern United States. September 2nd the company raised its quarterly dividend 2.6% to $0.4875/share. The dividend is payable on November 1, 2010, to Verizon Communications shareholders of record at the close of business on October 8, 2010. The ex-dividend date is October 6, 2010. The yield based on the new payout is 6.5%.

Friedman Industries (FRD) is engaged in steel processing, pipe manufacturing and processing, and steel and pipe distribution. September 2nd the company raised its quarterly dividend 100% to $0.08/share. The dividend is payableon November 19, 2010, to shareholders of record at the close of business on October 22, 2010. The ex-dividend date is October 20, 2010. The yield based on the new payout is 5.2%.

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

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(Photo Credit)

Recently, at the bottom of unrelated Baron’s article was a short discussion of 3 high-yield telecom companies. Since I own one of the companies, follow another in my D4L-Dashboard and had looked at the third one in the past, the article piqued my interest.  Below is the relevant text from the article:

The outsized excitement for corporate debt over equities is by now familiar. Eleven dollars in net inflows have gone to bond mutual funds for every net dollar into equity funds over the past three months, says Strategas Group.

The securities of telecom companies AT&T (T), Verizon (VZ) and CenturyTel (CTL) illustrate this: Their stock-dividend yields are between 6.4% and 8.3% — higher than their bond yields by one to three percentage points. Morgan Stanley strategists suggest that the stocks are a better deal, given the dividend sustainability (itself implied by the skimpy bond yields).

CenturyLink (CTL) (formerly CenturyTel) has been one of my high-risk success stories. The company provides a range of telephone services in 25 states, with operations concentrated in Alabama, Arkansas, Louisiana, Missouri and Wisconsin. In June 2008, CTL announced plans to increase its annual dividend to $2.80, from $0.27 beginning in July and to accelerate its share repurchase plans. I was attracted to CTL’s relatively strong balance sheet and strong cash flows driven by the less-competitive nature of the mostly rural markets it serves. I purchased my first block of CTL in November 2008, with two additional blocks in early 2009. Though the company has not raised its dividend since the June 2008 increase, I am content with my nearly 10% yield on cost.  During the time I’ve held the stock, the shares have increased 19%.  Here is the Analysis I performed prior to the original purchase. I am currently over-allocated in the stock, so I am no longer buying.  Even when I freeze the dividend at $0.70/share, my calculations show CTL is trading at a 2% discount.

AT&T Inc. (T) (formerly SBC Communications) provides telephone and broadband service, and the company holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006. I have tracked this stock for some time drawn by its 6%+ yield. Its Debt To Total Capital of 44% and Free Cash Flow Payout of 49% are both excellent. Unfortunately, its dividend fundamentals have not been good enough to entice me to purchase it. By my calculations it is trading at a 29% premium.

Verizon Communications Inc. (VZ) offers wireline, wireless, and broadband services.  This is a company that I have looked at several times, but its financials  and the limited number of consecutive years it has increased its dividend has kept me from adding it to my watch list. By my calculations, VZ is trading at a 29% premium.

Based on the three company’s dividend fundamentals and valuations, CTL would be continue to be my first choice. As investors we should always remember that there is always a reason when a company sports a higher than average dividend. Care should be exercised to understand the reasons before investing.

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

(Photo: sean carpenter)

When companies like 3M Company (MMM), Emerson Electric (EMR) and Dover Corp. (DOV) put together a string of consecutive dividend increases in excess of 50 years, they are sending a strong message to their shareholders. Below are a few companies with not quite they legacy of those above, but nevertheless are providing positive feedback to their investors by with higher cash dividends:

Teche Holding (TSH) is a bank holding company, with assets of $735.4 million at December 31, 2007, owns Teche Federal Bank, a federal savings bank with 19 offices in Louisiana.  Recently, the company raised its quarterly dividend 0.15% to $0.355/share. The dividend will be paid on September 30, 2009 to shareholders of record as of the close of business on September 16, 2009. The company has paid a cash dividend for 57 consecutive quarters. The current yield based on the new dividend is 4.10%.

Harris Corp. (HRS) focuses on communications equipment for voice, data, and video applications for commercial and governmental customers. This past week, the company increased its quarterly dividend 10% to $0.22/share. The dividend is payable September 18, 2009, to shareholders of record September 9, 2009. The current yield based on the new dividend is 2.61%.

Verizon Communications Inc. (VZ) offers wireline, wireless, and broadband services. VZ acquired MCI Inc in 2006 and has since sold or spun off non-core assets. Also, the company completed the acquisition of Alltel in early 2009. Yesterday, the company bumped its quarterly dividend by 3.3% to $0.475/share. The dividend is payable on Nov. 2, 2009, to Verizon Communications shareholders of record at the close of business on Oct. 9, 2009. The current yield based on the new dividend is 6.31%.

This week the number of companies increasing their dividends may be few, but there are many companies that have done so already, and many more that will do so later this year. For stocks with a long string of consecutive dividend increases, see this list.

Full Disclosure: Long MMM , EMR. See a list of all my income holdings here.

(Photo Credit)

Below are several select companies that recently decided to help their shareholders beat inflation by boosting their cash dividends:

• Verizon (VZ) Boosts Qtr. Dividend 7% to $0.46/Share (5.24% yield)
  
• Friedman Industries (FRD) Raises Qtr. Dividend 50% to $0.12/Share (5.99% yield)
  
• Supertel Hospitality (SPPR) Increases Qtr. Dividend 2% to $0.1275/Share (11.11% yield)
• Tyco International (TYC) Boosts Qtr. Dividend 33% to $0.20/Share (1.98% yield)
• Kraft Foods (KFT) Increases Quarterly Dividend by 7.4% to $0.29/Share (3.54% yield)

After running these companies through my D4L-PreScreen.xls model, none achieved the necessary NPV of MMA Differential to justify a full evaluation. Though they were short of my target, VZ ($2,136) had a positive NPV of MMA Differential and shows future potential.

Disclosure: No position in any of the aforementioned stocks.

(Photo: Steve Woods)