Are Dividend Increases on the Horizon? (CSCO, WMT, JPM, GE)

by Paul Ausick | February 23, 2010 11:00 am

Are Dividend Increases on the Horizon? (CSCO, WMT, JPM, GE)

When Home Depot (HD[1]) reported earnings yesterday, it also announced a 5% increase in its quarterly dividend to 23.625 cents per share. The company is not the first to hike its dividend, and it certainly won’t be the last.

Coca-Cola Co. (KO[2]) raised its dividend already this quarter, as did gold miners Kinross Gold Corp. (KGC[3]) and AngloGold Ashanti (AU[4]). One of the largest payouts comes from oil and gas driller Transocean Ltd. (RIG[5]), which declared a one-time dividend of $3.11 per share, as well as a stock buyback program of about $3.2 billion.

While growth was only moderate in 2009 for most companies, profits rose nicely, particularly in the second half of the year. Company officers and board members have had to do something to share the wealth with shareholders. While companies might prefer buybacks, which increase the value of a company’s shares (and the officers’ and board members’ options), shareholders would like to see some income if share-price growth is going to be relatively stagnant.

One company that is clearly due for a payout to shareholders is Cisco Systems, Inc. (CSCO[6]). Cisco has never paid a dividend, and shareholders have had to be happy with the company’s growth through acquisition. The company has nearly $40 billion in cash, and it spent about $1.5 billion in the December 2009 quarter on buying back shares.

Another company due for an increased dividend is Wal-Mart (WMT[7]). Wal-Mart’s annual dividend payout is $1.09, far less than EPS of $3.56 in 2009 and estimated EPS for 2011 of $3.99. Shareholders are staring at dead money[8], yielding just 2% annually when there is more than ample dividend coverage no matter what Wal-Mart decides to do about acquisitions or capital improvements.

In the financial sector, JP Morgan Chase & Co. (JPM[9]) is profitable once more, has repaid the federal TARP money it received, and preferred shares are trading above par values again. Last year’s dividend cut from $0.38 per share to $0.05 saved the company some $5 billion, and now that shareholders have done their part, it’s time for the bank to do its part. A dividend rise to an annual rate of $0.80 is clearly possible given the bank’s estimated 2010 EPS of $3.04.

General Electric (GE[10]) also cut its dividend last year, from $0.31 per quarter to just a dime. Raising the payout to the former dividend is not likely, but a raise to $0.15 per share per quarter would yield 3.8%. Once more, shareholders did their part, now GE should do its.

2009 was a pretty good year for a lot of companies, all things considered. Now it’s payback time.

 

Endnotes:
  1. HD: http://studio-5.financialcontent.com/investplace/quote?Symbol=HD
  2. KO: http://studio-5.financialcontent.com/investplace/quote?Symbol=KO
  3. KGC: http://studio-5.financialcontent.com/investplace/quote?Symbol=KGC
  4. AU: http://studio-5.financialcontent.com/investplace/quote?Symbol=AU
  5. RIG: http://studio-5.financialcontent.com/investplace/quote?Symbol=RIG
  6. CSCO: http://studio-5.financialcontent.com/investplace/quote?Symbol=CSCO
  7. WMT: http://studio-5.financialcontent.com/investplace/quote?Symbol=WMT
  8. Shareholders are staring at dead money: http://investorplace.com/experts/john_ogg/articles/time-to-sell-walmart-wmt-tgt-cost-rth.html
  9. JPM: http://studio-5.financialcontent.com/investplace/quote?Symbol=JPM
  10. GE: http://studio-5.financialcontent.com/investplace/quote?Symbol=GE

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