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9 Income Stocks Deliver Dividend Increases to Shareholders

Microsoft and McDonald's lead the way with another raise

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There were more than twenty companies which announced dividend hikes over the past week. In this article, I have outlined the companies which have managed to boost distributions for at least five years in a row.  I have excluded companies which pay fluctuating dividends as well as companies which might have raised dividends for a few years in a row simply by accident. Past dividend growth is no guarantee of future success however. As a result I added a brief analysis after each consistent dividend stock.

The nine consistent dividend raisers from the past week include:

Enterprise Products Partners (NYSE:EPD) provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the United States and internationally. This master limited partnership announced its plans to increase unitholder distributions to 65 cents per unit in the third quarter and 65 cents per unit in the fourth quarter of 2012. Enterprise Products Partners has raised distributions for 16 years in a row and yields a healthy 4.90%.

Few income stocks commit to boosting distributions for several quarters in a advance. Only a business with dependable cashflows could afford to accomplish this. The increase in distributions is supported by fee-based projects in Eagle Ford Shale in South Texas, which recently went online. In addition, the company also announced that a few other fee-generating assets are on schedule to start delivering revenues by the end of 2012. Check my analysis of this MLP.

McDonald’s (NYSE:MCD), together with its subsidiaries, franchises and operates McDonald’s restaurants primarily in the United States, Europe, the Asia Pacific, the Middle East, and Africa. The company raised its quarterly dividend by 10% to 77 cents per share. This marked the 36th consecutive annual dividend increase for this dividend aristocrat. Yield: 3.30%

In general, the most recent dividend increase has been very similar to what I forecast the company’s future annual dividend growth rate to be over the next few years. Analysts expect the Golden Arches to boost EPS by 7% per year for the next two years, from $5.27 per share in 2011 to $6.03 per share in 2013. As a result, future dividend increases in the 10% range could be easily supported by growth in business, reduction in share count and slight expansion in the dividend payout ratio. Check my analysis of McDonald’s.

Realty Income Corporation (NYSE:O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This REIT announced a slight distribution increase in its monthly dividends to $0.1514375 per share. This is an increase of 4.30% over the distribution paid this time last year. Realty Income has boosted distributions for 18 consecutive years, and was one of the few real estate investment trusts that didn’t cut dividends during the Financial Crisis.

However, given the low yield of 4.40%, I view the stock as a hold. The weak distribution growth over the past five years, coupled with investor’s hunger for dividend yield, has pushed the stock above my buy point.

However, I do like the intent to acquire American Realty Capital Trust (NASDAQ:ARCT), which would generate additional FFO/share to increase distributions to $1.94 per share after deal is closed. I would consider adding to my position at yields around 5%, but until then the stock is a hold for my income portfolio.

Microsoft (NASDAQ:MSFT) develops, licenses, and supports software products and services; and designs and sells hardware worldwide. The company raised its quarterly distributions by 15% to 23 cents per share. This marked the eighth consecutive annual dividend increase for Microsoft. Yield: 3%

I like the fact that Microsoft is a virtual monopoly in the PC market with its Windows Operating system. When I previously analyzed the stock, I liked the valuation, potential for dividend growth and the company’s moat at present levels.

However, I am still unsure of whether Microsoft will be able to maintain strong competitive position with software going forward, as an increasing number of users are switching from PC’s to Notebooks to Tablets. Moats are very difficult to maintain in the technology world, which is probably why I have been hesitant to add tech companies such as Microsoft  and Intel (NASDAQ:INTC) to my portfolio.

YUM! Brands (NYSE:YUM), together with its subsidiaries, operates as a quick service restaurant company in the United States and internationally. The company raised its quarterly distributions by 17.50% to 33.50 cents per share. This marked the ninth consecutive annual dividend increase for Yum! Brands. Yield: 2%

The company is expected to grow earnings from $2.74 per share in 2011 to $3.73 per share by 2013. Strong earnings growth will fuel double digit dividend increases at least by the end of the decade.

Unfortunately, the stock is trading at more than 21 times earnings and only yields 2%. I was able to scoop some shares of this fast growing company a few years ago and would likely add to my position on any large dips in the stock price. I would add to my position if price falls to $54/share, or if the dividend goes up by 25% next year and price is unchanged from today’s levels I would likely be a buyer.

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