The Fed has started the end of the near-zero rate cycle cycle, sort of. But yesterday’s sudden discount rate hike to 0.75% from 0.50% is almost certainly a prelude to the Fed Funds rate hike(s) coming soon to a theater near you. After more than a year of short-term government interest rates being almost zero percent, stock dividend yields will have to start competing again with Treasury yields. We have been seeing a trend in 2010 of hiked dividends, and this week continued that trend. So far we have seen The Coca-Cola Company (NYSE: KO), Coca-Cola Enterprises (NYSE :CCE), Tiffany & Co. (NYSE: TIF), P.F. Chang’s China Bistro, Inc. (NASDAQ: PFCB), Transocean Ltd. (NYSE: RIG), Kinross Gold Corporation (NYSE: KGC) and AngloGold Ashanti (NYSE: AU) all jumped on the dividend hike or initiation bandwagon.
Altria Group Inc. (NYSE: MO) and HJ Heinz Co. (NYSE: HNZ) offered guidance this week with the promise or hint of a higher dividend payout coming soon. Daimler AG (NYSE: DAI) and Home Properties Inc.’s (NYSE: HME) cut their dividends this week and the reactions look far from favorable. In the new-normal, ,any investors are looking for return via income rather than just growth shares that have no income paid to common holders. A description and yield has been broken down for each.
The Coca-Cola Company (NYSE: KO) raised its dividend by over 7% to $0.44 per quarter. This DJIA component now commands a dividend yield of 3.15%. As far as its dividend coverage, there are far more dividend hikes possible down the road. Thomson Reuters expects 2010 earnings at $3.42 EPS and 2011 earnings at $3.74 EPS. With annual payments now being $1.76, there is plenty of room for Coke to pour more cash out of the fountain machines into the cups of shareholders. Also seen was a hike from Coca-Cola Enterprises (NYSE :CCE), which raised its quarterly dividend by 12.5% to $0.09 per common share. Its new yield based on Thursday’s close is about 1.8%.
Tiffany & Co. (NYSE: TIF) was very much a surprise to see it raise the quarterly payout. Even if the company has held up far better in the recession than many would have guessed, it does have significant exposure to the economy due to it being a jewelry company. The dividend was bumped up 18% to $0.20 per quarter for a current future yield of about 1.85%.
Gold miners and producers are almost never thought of as big dividend bets. Yet Kinross Gold Corporation (NYSE: KGC) and AngloGold Ashanti (NYSE: AU) hiked their quarterly payouts from a year ago. Kinross’ Board of Directors declared a $0.05 per share dividend. That is the same semi-annual dividend announced in September-2009 but is up from the March-2009 level of $0.04. The yield there is about 0.5%. AngloGold Ashanti (NYSE: AU) announced that its final dividend of 70 South African cents per share is 17% more than the interim dividend of 2009. Its total dividend declaration of 130 South African cents was listed as a 30% improvement on 2008’s final declaration.
P.F. Chang’s China Bistro, Inc. (NASDAQ: PFCB) was a dividend surprise. The company said that the amount of its cash dividend will be based on 45% of its quarterly net income and is expected to total approximately $0.90 per share relating to fiscal 2010. Before this week there had been no dividends paid to holders. Based upon Thursday’s close the stock’s dividend yield is 2.1%.
Transocean Ltd. (NYSE: RIG) has never been thought of as a huge dividend stock. This week its board authorized CHF 3.5 Billion for share buybacks and will seek shareholder approval for a US$1.0 Billion dividend. The dividend portion here is listed as about $3.11 per share, which would generate a yield of 3.7%.
Altria Group Inc. (NYSE: MO) did not hike its dividend, but hinted that another hike is coming down the road. Altria reaffirmed this week that it expects 2010 guidance to increase to a range of $1.85 to $1.89 EPS, representing a growth rate of 6% to 8% from an adjusted base of $1.75 per share in 2009….. “As a result of the challenging economic environment” it revised its mid-term adjusted EPS growth objective to 7% to 9%. The company noted, …”which offers an attractive EPS and dividend growth prospect to shareholders.” In short, more hikes are coming on top of its almost-7% yield.
HJ Heinz Co. (NYSE: HNZ) raised its guidance this week to $2.82 to $2.85 EPS for 2010 and noted for the dividend in 2011…. “delivering very strong cash flow and, to that end, we expect to deliver a dividend increase for Fiscal 2011 commensurate with our strong profit growth.” The current dividend yield here is about 3.7%.
Daimler AG (NYSE: DAI) acted yesterday as the poster child of what not to do. The German car giant gave a 2010 outlook meant to reassure investors that was far from reassuring. It posted an unexpected net loss in it latest quarter and decided that it would scrap its annual dividend/ We saw shares down almost 7% early Thursday but the stock’s ADR ended up closing down ‘only’ 4.7%.
Home Properties Inc.’s (NYSE: HME) gave fourth-quarter earnings last night and the apartment REIT said that its profit was down by more than 50%. It then proceeded to cut its quarterly dividend by 13% because of a delayed economic recovery expectation. Most investors buy REITs because they have high payouts and it looks like the 5.8% yield here is no more.
If you are a dividend and income oriented investor, we have lists of companies which have not yet hiked their dividends or not yet started paying dividends that we expect to see raises to in 2010. The primary list of giants we expect to raise their dividends includes J.P.Morgan Chase & Co. (NYSE: JPM), General Electric Co. (NYSE: GE), and many others. A second list includes Mattel, Inc. (NYSE: MAT), American Water Works Company, Inc. (NYSE: AWK), Exxon Mobil Corp. (NYSE: XOM), and others for dividend hikes.
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JON C. OGG
FEBRUARY 19, 2010