The Great Overlooked Dividend Hikes During the Panic (COV, CXS, DISCA, FITB, F, HST, LVS, LMT, MCD, MSFT, NEM, O)

September 23, 2011 by Jon C. Ogg

This was no good week for stocks even if the markets have bounced off the lows numerous times on Friday.  The low of the DJIA on Friday morning of 10,638 was down about 7.5% from the prior Friday’s close of $11,509.09.  Ugly no matter how you cut it.  What is so interesting is that companies are still making strides in increasing their payouts in dividends to shareholders as a clear message that their businesses are not at all imploding.  Maybe things in China are slowing and maybe the Europeans have us fearing another 2008 to 2009 panic, but these companies are raising dividends in an effort to tell you that they believe that they have clarity in their earnings ahead.

The following companies either announced dividend hikes or hinted at dividend hikes soon: Covidien plc (NYSE: COV); CreXus Investment Corp. (NYSE: CXS); Discovery Communications, Inc. (NASDAQ: DISCA); Fifth Third Bancorp (NASDAQ: FITB); Ford Motor Co. (NYSE: F); Host Hotels & Resorts, Inc. (NYSE: HST); Las Vegas Sands Corporation (NYSE: LVS); Lockheed Martin Corporation (NYSE: LMT); McDonald’s Corporation (NYSE: MCD); Microsoft Corporation (NASDAQ: MSFT); Newmont Mining Corp. (NYSE: NEM); and Realty Income Corporation (NYSE: O).  These are not even all of the hikes as there were many dividend announcements from smaller companies during the week.

Covidien plc (NYSE: COV) is showing that healthcare products aren’t so worrisome after all.  The company announced on the evening of September 22 that it increased its quarterly dividend by 12.5% from $0.20 to $0.225 per ordinary share.  The new $0.90 anualized payout now generates a dividend yield of roughly 1.97%.

CreXus Investment Corp. (NYSE: CXS) declared on September 20 a bump to its third quarter dividend of $0.30 per share, a 25% gain from the prior $0.25 payout.  As with all entities of this sort, it is hard to know whether or not this payout can be continued as income from quarter to quarter can fluctuate substantially.  To prove the point, this annualized dividend would be approximately 13% and around $9.15 its 52-week range is $8.26 to $13.51.  The company did note, ” We believe our shareholders will continue to see the benefits of the breadth and diversity of our platform in the quarters and years ahead.”

Discovery Communications, Inc. (NASDAQ: DISCA) is not a dividend  payer, but early this week came word from the Goldman Sachs Media conference that its CEO is pushing for a stock buyback and has said that a dividend initiation is possible.  For a media company with no dividend, that could be a coup. The stock is close to $40 per share and its estimates for earnings from Thomson Reuters are $2.36 EPS for 2011 and $2.81 EPS for 2012.

Fifth Third Bancorp (NASDAQ: FITB) is a bank and a rather large one for a regional bank.  How many regionals worth almost $10 billion are raising their dividends right now?  Not many, but Fifth Third is.  On September 20 came word that the bank raised its quarterly payout by one-third to $0.08 per quarter.  After the drop this week, the new dividend yield is about 3.25% based upon a $9.80 share price.  Its 52-week range is $9.13 to $15.75.

Ford Motor Co. (NYSE: F) may sooner than later be a dividend candidate.  BusinessWeek was quoted as saying that Ford may resume its dividend policy in the near future.  It even went on to note that it may not wait for its investment grade rating before doing so.  We will leave it to you as to whether or not you trust earnings estimates ahead, but Thomson Reuters has estimates of $1.93 for 2011 and $1.80 for 2012.  With a stock now back under $10.00, there may be substantial room for payout resumptions.  Maybe the F-O-R-D acronym has changed from “Fix or Repair Daily” to “Found Our Rightful Dividend.”

Host Hotels & Resorts, Inc. (NYSE: HST) announced on September 19 that its board has raised its quarterly cash dividend to $0.04 per share from a prior rate of $0.03 per quarter.  What makes this hike interesting is that it comes at a time when consumer spending is on the rocks and dividend hikes convey the message that they can be supported for years and years. No bed bugs here.  The new rate is only 1.5% now but that is a commitment to sustained earnings by our take and Thomson Reuters has estimates of $0.91 EPS in 2011 and $1.15 EPS in 2012.  If those estimates can be met and sustained, then Host ma be hosting more dividend hikes in the future.

Las Vegas Sands Corporation (NYSE: LVS) could end up being a miracle of the decade after having nearly imploded during the recession.  Now came word this last week that the casino and resort outfit could initiate a dividend in 2012.  Casinos traditionally pay out no dividends or poor dividends but we are in a new age where companies have to consider returning capital back to shareholders.  With shares around $44.75 now, the 52-week range is $31.77 to $55.47 and Thomson Reuters has estimates of $1.90 EPS for 2011 and $2.45 EPS for 2012.  We will leave it to you as to whether those estimates can be hit, but that still leaves room for a dividend of up to 1% or so.  What odds would the bookies give you on a dividend hike?

Lockheed Martin Corporation (NYSE: LMT) is in the at-risk defense sector as budget cuts and austerity measures pose a risk to all players in that realm.  It sounds counter-intuitive but the company raised its dividend on September 22 to $1.00 per share and added an additional $2.5 billion to its share repurchase program. The company said it is part of its long-standing goal to return at least 50% of free cash flow to holders and this was the ninth consecutive annual increase of at least 10% in its payouts.  What was amazing is that the jump was by a third from a prior $0.75 payout. With shares around $72.00, this now generates close to a 5.5% dividend yield.  It pays to be a warlord.

McDonald’s Corporation (NYSE: MCD) was one we expected to see a dividend hike from in the coming weeks and the company delivered.  The Golden Arches and home of Le Big Mac raised its payout by about 15% or $0.09 to $0.70 per quarter.  The new dividend comes to a yield of about 3.2% based upon an $87.00 share price.  The 52-week range is $72.14 to $91.22 and what is so impressive is that Mickey Dee’s has a $90 billion market cap.  In the world of food and investing, this is now the McDividend.

Microsoft Corporation (NASDAQ: MSFT) announced on September 20 that it was hiking its dividend by 25% to $0.20 per quarter per share, giving close to a 3.0% dividend yield.  Wall Street and Main Street saw this as a bit anti-climactic as there were hopes for an even larger payout and the street wanted that announcement a week earlier.  No good deed goes unpunished.

Newmont Mining Corp. (NYSE: NEM) has adjusted its dividend policy payout ratios as it promised, even if this is not technically a hike.  The gold producer is the king of gold dividends already, but now it set the dividend payouts to the price of gold as follows: an additional 7.5 cents per share when its realized gold price exceeds $1,700 per ounce, and an additional 2.5 cents when its realized gold price for a quarter goes above $2,000 per ounce.  The current yield is 1.8%, which actually leads the larger gold players.

Realty Income Corporation (NYSE: O) is a REIT in around what many fear in the commercial retail real estate segment.  It announced on September 19 the hike, but the next day it also announced a stock offering.  The hike might not sound huge, to $0.1451875 per share from $0.144875 per share, but this was the 56th consecutive monthly increase.  Again that is a monthly payout and the yield on a static basis comes to more than 5.2% based upon the $33.20 share price against a 52-week trading range of $27.93 to $36.35.

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JON C. OGG