4 Dividend Raises, 4 Different Risks. Which Stock Comes Out on Top?
Four companies in refining, auto retail, semiconductors, and specialty materials just raised their dividends, but the size of each raise tells almost nothing about which one can actually keep growing it.
When a board raises its dividend, it signals how much cash it expects to have, and four companies in unrelated industries (refining, auto retail, semiconductors, and specialty materials) just raised their payouts. The size of each raise matters less than how much buffer is left after it. Silicon Motion (NASDAQ:SIMO) made the biggest move, lifting its quarterly payout by about 15%. Coverage, cash flow, and balance sheets tell a different story about which raise can keep growing, and the list runs from least room to grow to most.
Penske Automotive Group: A Steady Raiser With a Buyout Price Attached
Penske Automotive Group (NYSE:PAG | PAG Price Prediction) raised its quarterly dividend to $1.46 from $1.44, declared October 14 and payable December 1 to holders of record on November 13. The forward annual payout of $5.84 against a $212 share price gives a yield of about 2.75%.
Dividend safety: The available record shows the dividend rising every quarter, from $0.43 in January 2021 to today’s $1.46. The company reported a trailing payout ratio of 41%, which leaves plenty of earnings behind each check. Second-quarter revenue rose 11.1% to $8.51 billion, with net income of $260.4 million. Its financial position is thinner: cash was at just $69.5 million, and other interest expense rose 53.2% year over year.
Bull case: Service and parts carry a 59.5% gross margin, and that recurring work holds up even when car sales slow. The 28.9% stake in Penske Transportation Solutions added $57.4 million in equity earnings. Six Toyota and Lexus acquisitions are expected to add about $2 billion in annualized revenue.
Risk: Penske Corporation and Mitsui agreed to take the company private for $212.00 per share in cash, with closing expected in the first quarter. The stock already trades at the deal price, so public shareholders stop receiving dividends once the deal closes, and this raise is likely the last one public shareholders get for long-term income growth.
Silicon Motion: The Biggest Raise Rests on Earnings That Have Not Yet Turned Into Cash
Silicon Motion declared four quarterly dividends of $0.575 per ADS on October 16, up from $0.500. The first is payable November 19. The forward annual rate of $2.30 on a $210 share price yields about 1.1%.
Dividend safety: Measured against earnings, coverage looks excellent. The trailing dividend matches about 26% of trailing EPS of $7.75. The payout sat at $0.500 from November 2021 through August 2026, so this is the first raise after a long freeze, with no growth streak behind it. Cash flow is the weak spot: second-quarter operating cash flow was negative $63.8 million, cash fell to $74.4 million, and inventory grew to $673 million.
Bull case: Second-quarter revenue rose 127% to $451 million, and non-GAAP EPS of $2.43 beat estimates by 15.35%. Third-quarter guidance calls for revenue of $519 million to $541 million as the company moves into AI infrastructure with its MonTitan enterprise SSD controllers. If that inventory turns into cash, the low payout ratio leaves room for more raises.
Risk: A proposed $800 million convertible notes offering due 2031 could dilute shareholders. It shows the company needs outside capital while operating cash flow is negative. The stock fell 22.83% over the past month.
Avient: Sixteen Straight Annual Raises, Funded by Record Margins
Avient (NYSE:AVNT) raised its quarterly dividend to $0.2825 from $0.275, declared October 6 and payable January 7. The forward annual payout of $1.13 on a $39.51 share price yields about 2.86%, the highest of the four.
Dividend safety: Avient called this its sixteenth consecutive annual dividend increase, and the payment record confirms annual increases from 2011 through 2026. On GAAP numbers, the trailing dividend uses about 58% of trailing EPS of $1.88. Measured against full-year adjusted EPS guidance of $3.10 to $3.25, the forward dividend works out to roughly 35% to 36%. The company holds $425.6 million in cash and plans to repay $100 million to $150 million in debt this year, with $50 million already repaid in the second quarter.
Bull case: Second-quarter adjusted EPS rose 20% to $0.96, and the adjusted EBITDA margin expanded 110 basis points to a record 18.3%. At about 12x forward earnings versus 21x trailing, investors are paying a moderate price for still-growing earnings, according to consensus figures. Avient also named Mike Frank as chief executive this month.
Risk: Specialty chemicals demand moves with the economy, and Avient is exposed to tariffs, raw material inflation, and supply disruptions in the Middle East. The raise was about 2.7%, suggesting debt reduction comes first for now.
Phillips 66: Two Raises This Year and Cash Flow to Spare
Phillips 66 (NYSE:PSX) raised its quarterly dividend to $1.33 from $1.27, declared October 16 and payable December 1. That is a raise of about 4.7%, and it comes on top of a February 11 declaration that lifted the payout from $1.20. The forward annual rate of $5.32 on a $294.92 share price yields about 1.8%, because the stock has gained 133.26% year to date.
Dividend safety: The trailing dividend takes about 28% of trailing EPS of $17.50. Cash flow coverage is stronger still. Second-quarter operating cash flow of $7.26 billion minus $726 million of capex left roughly $6.5 billion in free cash flow, about 12.9 times the $508 million paid in dividends. Cash ended the quarter at $4.1 billion. The quarterly payout has risen every year since it was at $0.90 in 2020.
Bull case: Worldwide realized refining margins rose to $24.08 per barrel in the second quarter from $10.11 in the first. The Golden Triangle and Ras Laffan polymers projects are set to come online in 2027, adding non-refining earnings. Chief Executive Mark Lashier listed capital priorities as “dividends, share repurchases and debt reduction,” with dividends first. The stock trades at about 10x forward earnings, per consensus data.
Risk: Refining is cyclical. First-quarter operating cash flow was negative $2.26 billion. Debt-to-capital rose to 48% from 39%, and total debt reached $27.1 billion, partly because of the Lindsey Oil Refinery acquisition. A weak-margin quarter can quickly wipe out cash flow.
Phillips 66 Has the Most Room to Keep Raising
Penske’s raise continues an impressive streak, but the buyout ends it for public shareholders. Silicon Motion’s payout ratio is the lowest, but its cash flow has not yet caught up with its earnings. Avient has the longest verified record of raises and a reasonable adjusted payout, though debt reduction is keeping its increases lowest. Phillips 66 has raised twice this year, pays out about 28% of earnings, and covered its dividend with free cash flow nearly 13 times last quarter, giving it the most room of the four to keep growing the payout.
Contact [email protected] for any questions or corrections.
Chris Lange is a financial and geopolitical writer with more than a decade of experience covering a myriad of topics. He has published thousands of articles for 24/7 Wall St., with past coverage focused heavily on stocks, IPOs, healthcare, defense, global affairs, and technology.
His work has been quoted, or referenced by a number of outlets including Business Insider, USA Today, Yahoo Finance, MSN, The Motley Fool, and many other publications. A graduate of Southwestern University, he studied business with a focus on investments and has previous experience in banking and startups.
When not reading or writing the news, he is following his passion for Lacrosse, playing chess, or building solar projects with his dad.
