Dividend increases: 15 stocks announcing massive hikes

Looking for more than token dividend increases? Consider this list of 15 companies announcing substantial payout hikes over the past few months.

  • By Lisa Springer,
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While sometimes not the highest yielders, dividend growth stocks, known for steady dividend increases over time, can be valuable additions to your income portfolio.

More than 40% of total stock returns among S&P 500 (.SPX) components have historically come from dividends, and all else being equal, a rising dividend amplifies the compounding effect boosts stock returns.

And there is ample evidence that dividend growers outperform other stocks over time with much lower volatility. For instance, a Hartford Funds study of the past 50 years showed dividend growers outperforming other dividend payers by 37 basis points annually and non-dividend payers by 102 basis points.

Why do dividend growers outperform? One reason may be the expanding earnings and cash flow and shareholder-friendly management teams that often characterize these companies. In addition, consistent profitability, solid balance sheets and low payouts enable dividend growers to weather any economic storm.

Dividend-growth stocks are likely to become even more appealing in 2021 due to their ability to shelter investors from rising inflation. Dividend increases protect against inflation by providing a bump in income every time the dividend is hiked.

Today, we're looking at 15 stocks that have recently announced much-larger-than-usual dividend increases. Each has already raised its dividend once in 2021, with increases ranging from 18% to nearly 40%. Most also fit the classic definition of a dividend grower, based on their cash-rich balance sheets, formidable cash flow and meager payouts allowing room for more dividend growth.

Data is as of April 26. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks listed in reverse order of recent dividend growth.

Ares Management

  • Market value: $8.8 billion
  • Dividend increase: 18%
  • Dividend yield: 3.4%

Ares Management (ARES) is a global alternative asset manager that invests across multiple segments, including credit, private equity and real estate. The company managed roughly $197 billion of assets at the end of 2020, and has offices in North America, Europe and Asia.

Despite the global pandemic, Ares Management generated impressive results in fiscal 2020, with assets under management and fee-related earnings up 30%. The company also reported $40 billion in new funds raised, and deployed just half of that. Additionally, EPS in the December quarter exceeded analyst estimates by 20%.

During the first quarter of this year, Ares walked away from its proposed joint venture with AMP, one of Australia's largest wealth managers, and closed its new Pathfinder Fund. The new fund has secured $3.7 billion of financing commitments, far exceeding the company's original $2.0 billion funding goal.

Ares issued an 18% dividend increase for its first quarter, which followed a 25% hike in 2020. Dividends haven't increased every year, however, and the company has occasionally cut dividends during downturns. And because Ares operates its real estate business as a publicly traded real estate investment trust (REIT), the company has a high payout ratio that currently ranges around 90%.

Monolithic Power Systems

  • Market value: $17.8 billion
  • Dividend increase: 20%
  • Dividend yield: 0.6%

Monolithic Power Systems (MPWR) provides semiconductors chips for the industrial, telecom infrastructure, cloud computing, automotive and consumer markets.

The company's revenue grew 34.5% in fiscal 2020 and EPS improved 11.3% as a result of robust chip demand from the cloud computing and storage, communications and consumer sectors. Analysts are forecasting 15.9% EPS growth in 2021.

The company could reap the benefits of a 25% increase in manufacturing capacity in 2021 and more will come on line later this year when Monolithic's new 8-inch chip fabricating line commences volume shipments for autonomous driving vehicles.

MPWR hiked its April 2021 dividend by 20 and has issued dividend increases every year since 2017. A great balance sheet showing $595 million of cash versus only $3 million of debt provides a solid platform for dividend growth.

Quanta Services

  • Market value: $13.6 billion
  • Dividend increase: 20%
  • Dividend yield: 0.3%

Quanta Services (PWR) provides infrastructure modernization and repair services for the utilities, energy and communications industries worldwide. The company benefits from multi-year trends such as utility grid modernization, grid hardening, the integration of renewables and increasing worldwide demand for electricity.

Quanta Services generates the reliable results typical of utility-related businesses and over the past decade has produced 12% annual revenue growth, 9% adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) gains and 15% adjusted EPS growth. The company set new records for EPS, EBITDA and free cash flow in 2020, with adjusted EPS up 15% year-over-year, and Quanta Services anticipates adjusted EPS growth exceeding 12% in fiscal 2021 .

Quanta Services approved a dividend increase of 20% in December, after raising its annual dividend 25% in 2020. Dividend payments commenced in 2019. While the company has only a three-year dividend record, its payout ratio is an ultra-low 7%, allowing for plenty of investment in business expansion, dividend hikes and share repurchases.

Additionally, PWR was one of the top 20 S&P 500 Index stocks in 2020, with shares up 77% for the year.

Domino’s Pizza

  • Market value: $15.5 billion
  • Dividend increase: 21%
  • Dividend yield: 0.9%

Domino's Pizza (DPZ) is the world's largest pizza chain, garnering sales from 17,600 company-owned and franchised stores in the U.S. and internationally.

Over the past decade, the company has generated 10% annual growth in sales and 25% yearly EPS gains. Its sales mix is roughly two-thirds delivery orders and one-third carryout and Domino's benefited significantly from dine-at-home trends in 2020.

Domino's Pizza plans to expand its global presence by adding nearly 2,000 new stores in the U.S., 2,000 in developed markets and 3,000 in emerging markets. Site expansion is expected to fuel 6%-8% net unit growth and 6%-10% annual sales growth over the next two to three years.

During fiscal 2020, the company delivered 11.5% U.S. same-store sales growth, a 12.5% jump in global revenue and a 30% rise in EPS gains through a combination of COVID-related momentum, new store openings and share repurchases that enhanced EPS growth.

The company signaled confidence by approving a 21% dividend increase for its first quarter and a new $1 billion share repurchase. Annual dividends have increased every year since 2013 and grown 20% annually over five years.

Cerner

  • Market value: $22.9 billion
  • Dividend increase: 22%
  • Dividend yield: 1.2%

Cerner (CERN) provides healthcare information technology solutions to more than 650,000 physicians and over 2.2 million other users nationwide. The company's healthcare IT platform manages over 262 million patient records and is found in nearly a third of U.S. hospitals.

The sale of a non-strategic business and effects from the pandemic caused Cerner's total revenue to decline in 2020, but adjusted EPS improved 6% due to reduced operating expenses. The company targets 2021 adjusted EPS roughly 11% higher than its 2020 profit.

CERN shares have dropped nearly 4% since the start of 2021, weighed on in part by analyst downgrades. Bank of America analyst Michael Cherny acknowledged Cerner as the clear market leader in healthcare IT, but thinks CERN shares are too richly valued. And UBS analyst Kevin Caliendo also downgraded CERN shares because of its high price-to-earnings (P/E) multiple.

Cerner signaled confidence with a 22% dividend increase in its first quarter, something it hasn't done since payments were initiated in 2019. Cerner's modest debt load and conservative 25% payout ratio make this an especially safe dividend.

Sherwin-Williams

  • Market value: $72.1 billion
  • Dividend increase: 23%
  • Dividend yield: 0.8%

Sherwin-Williams (SHW) is a leading global manufacturer of paints, coatings and related products for do-it-yourselfers (DIY) and professionals. Its well-known brands include Valspar, Dutch Boy, Cabot, HGTV Home, Minwax, Thompson's WaterSeal and many others. Sales are made through nearly 4,800 company-owned stores and thousands of big box retailers, home centers, hardware stores and other locations. The company generates 80% of its revenue in North America and has sales in 120 countries.

Growth in the company's North American DIY segment helped fuel a 3% rise in net sales in fiscal 2020 and improving product mix and gross margins supported 16% adjusted EPS growth. Net cash from operations rose 47% last year to record $3.4 billion and nearly 19% of sales.

Sherwin-Williams anticipates improving industrial demand and continued high residential growth in its North American markets in 2021, and is targeting mid-to-high single digit sales growth and 9%-11% adjusted EPS gains this year.

Evercore ISI analysts recently recognized SHW as one of a handful of retail stocks well-positioned to manage through a minimum wage hike. Analysts like the company's high sales per employee, pricing power and operating efficiencies, and SHW shares have a consensus rating of Strong Buy.

Sherwin-Williams has delivered 43 consecutive years of dividend increases. In February, the company hiked its quarterly dividend 23%, while also announcing a 15 million share repurchase and a 3-for-1 stock split. Annual dividend growth over five years has averaged nearly 15%, while its payout is currently around 25%.

Nexstar Media Group

  • Market value: $6.7 billion
  • Dividend increase: 25%
  • Dividend yield: 1.8%

Nexstar Media (NXST) is a broadcasting and digital media company operating 198 TV stations and related assets across 116 U.S. markets. Its signal reaches approximately 68% of domestic households. The company also produces over 270,000 hours of local news and other content each year.

Nexstar's digital network was a key driver of fiscal 2020 growth, averaging 91 million monthly users last year, up 70% from the year prior.

NXST's revenue rose 48% in 2020 as a result of last year's acquisition of WGN America and other Tribune assets, and EPS surged 260%. The company also generated 191% growth in free cash flow and is guiding for $1.3 billion of free cash flow in 2021.

Nexstar rewarded its investors with a 25% dividend increase for the first quarter and also authorized an additional $1.0 billion of share repurchases. Dividends have risen every year since 2013, with annual gains averaging 24% over five years. The company's ultra-low 13.6% payout means the dividend is well covered.

Stephens analyst Kyle Evans is bullish on NXST and looks for double-digit share price gains as a result of the company's massive scale, declining leverage and rising dividend. Wells Fargo also recommends Nexstar for its low leverage and aggressive share repurchasing, while Loop Capital raised its NXST price target in February after a strong December quarter and forward guidance.

Zoetis

  • Market value: $80.7 billion
  • Dividend increase: 25%
  • Dividend yield: 0.6%

Zoetis (ZTS) develops and manufactures animal healthcare products, including medicines, vaccines and diagnostics for both livestock and companion animals. The company markets over 300 different products, manufactured from 29 sites globally, and generates sales in over 100 countries. Zoetis ranks as the leading animal health company in the U.S. and Latin America and No. 2 in both Europe and Asia.

Zoetis' sales rose 7% and EPS improved 10% in fiscal 2020. New products, increased penetration of non-U.S. markets – particularly China – and market share expansion for its diagnostic products all support the company's expectations for 17% EPS growth in 2021. These new products include Simparica Trio, a triple combination parasiticide for dogs, as well as Apoquel and Cytopoint dermatology products.

Zoetis approved a 25% dividend increase for its first quarter, marking the company's eighth consecutive year of dividend growth and 20% annual dividend gains over five years. The company's modest 26% dividend payout ratio provides ample runway for dividend growth.

Bank of America analyst Michael Ryskin upgraded ZTS shares to Buy in March, citing elevated spending on companion animals in 2021 and a recent selloff that makes ZTS shares a compelling value.

SBA Communications

  • Market value: $32.4 billion
  • Dividend increase: 25%
  • Dividend yield: 0.8%

SBA Communications (SBAC) is a leading provider of communications infrastructure for wireless service providers in North America, Latin America and Africa. Site leasing is this REIT's principal business. SBA leases antenna space on multi-tenant sites to most major wireless service providers under long-term leases. The company owns nearly 33,000 communications sites, split roughly 50/50 between the U.S. and internationally.

SBA grew adjusted funds from operations (AFFO, a REIT earnings metric) per share 19% in the fourth quarter of fiscal 2020, and guided for 2021 AFFO of $10.00 per share range. AFFO gains will come from acquisitions, a new leasing agreement with DISH Network (DISH), upcoming spectrum auctions that expand the international reach and low interest rates that enable new cell tower and site development.

The REIT approved a quarterly dividend dividend increase of 25% to a $2.32 annualized rate, implying 23.2% payout ratio from projected 2021 AFFO per share. SBA began paying dividends in 2019 and hiked payments by 25.76% in 2020.

Although the payout ratio is conservative, investors should note that the company has high leverage with long-term debt exceeding $11 billion, negative book value and total debt exceeding 150% of capital.

Raymond James analyst Ric Prentiss upgraded SBA shares to Strong Buy in March, citing a 30% price drop since the shares hit a high last September. Prentiss also made note of SBA's rising exposure to the U.S. market and opportunistic share repurchases as reasons for his upgrade.

Best Buy

  • Market value: $29.3 billion
  • Dividend increase: 27%
  • Dividend yield: 2.4%

Best Buy (BBY) is a leading retailer of consumer electronics and related merchandise. The company also offers computer and mobile phone repair and warranties under its Geek Squad brand. Best Buy operates nearly 1,000 stores in the U.S. and another 200 stores in Canada and Mexico.

The company's online sales surged 144% in fiscal 2021, which ended Jan. 30. In addition, Best Buy recorded its seventh consecutive year of comparable store sales growth last year, with same-stores sales up 9.7%. Adjusted EPS also improved, rising 30.3%.

Despite this strong performance, Citi analysts turned negative on BBY shares in March due to expectations that consumer spending will shift this year as the U.S. economy recovers. And Raymond James analysts called BBY a 2023 story and downgraded the stock to Hold. These downgrades may present a buying opportunity as BBY shares currently trade at only 14 times its P/E.

Best Buy proceeded with a 27% quarterly dividend increase in March, and it's raised its dividend every year since 2013. Annual dividend growth over 10 years has averaged nearly 15% and the company's conservative 30% payout provides a high margin of safety.

Packaging Corp. of America

  • Market value: $13.6 billion
  • Dividend increase: 27%
  • Dividend yield: 2.8%

Packaging Corp. of America (PKG) is North America's third largest manufacturer of containerboard and corrugated products. The company operates six mills and 90 converting facilities, and last year produced 4.3 million tons of containerboard and shipped 62.8 billion square feet of corrugated products.

Although EPS and revenue declined in fiscal 2020 due to facility closures and Hurricane Laura-related repair costs at its mill in DeRidder, Louisiana, the company's sales volume at both its containerboard mills and corrugated product facilities reached all-time highs in the December quarter and total box shipments in its first-quarter of 2021 matched the previous record.

And analysts project the company's recent price increases will drive 2021 EPS 40% higher.

PKG raised its quarterly dividend by 27% in December, marking its first dividend increase since 2018.

KeyBanc analyst Adam Josephson upgraded PKG shares to Sector Weight in December, citing the company's balance sheet and strong containerboard industry fundamentals, the latter of which he said are the best they've been in 25 years.

Jefferies Financial Group

  • Market value: $8.1 billion
  • Dividend increase: 33%
  • Dividend yield: 2.5%

Jefferies Financial Group (JEF) offers investment banking, asset management and other financial services worldwide. The company derives most of its revenues from core investment banking, capital markets and alternative asset management businesses and is in the process of downsizing its less profitable merchant banking operations. Its principal subsidiary, Jefferies Group LLC, is one of the largest independent full-service investment banks in the U.S.

Jefferies achieved record net revenue of $5.2 billion in fiscal 2020, as well as record net earnings of $875 million and 20.4% return on equity (ROE). Revenue from investment banking, capital markets and asset management each set new records, while the merchant banking business recorded a pre-tax loss. Jefferies also ramped up share repurchases, and has returned nearly $3.4 billion to investors in the past three years through both stock buybacks and dividends.

Last year's earnings growth was fueled by a surge in new special purpose acquisition company (SPAC) startups, which increased investment banking fees. Jefferies equity underwriting fees nearly tripled to $902 million. This high level of SPAC activity is expected to continue in 2021 and enhance investment banking profits.

Jefferies rewarded investors with a 33% quarterly dividend hike for fiscal 2021, following a 20% increase in 2020. While dividends haven't increased every year, growth over five years has exceeded 20% annually.

Old Dominion Freight Line

  • Market value: $29.4 billion
  • Dividend increase: 33%
  • Dividend yield: 0.3%

Old Dominion Freight Line (ODFL) is a North American freight company that's ranked as the top national less-than-truckload (LTL) carrier for 11 years in a row. The company specializes in time-sensitive deliveries, with approximately 70% of its shipments requiring next-day or second-day delivery. Old Dominion owns roughly 41,000 trucks and trailers and operates 246 service centers across the continental U.S.

Despite COVID-19 challenges, the company delivered a record operating ratio and 11% EPS growth last year. Plus, EPS in the December quarter surged 34.2%, fueled by an improving domestic economy that boosted freight demand.

Old Dominion hiked its quarterly dividend by 33% in March, reversing a defensive 24.8% 2020 dividend cut early during the pandemic. The company issued annual dividend increases of 35% in 2019 and 31% in 2018. A modest 10.3% payout ratio and a balance sheet showing $401 million in cash and virtually no debt make dividend hikes easily sustainable.

Goldman Sachs (GS) considers this freight carrier a cyclical growth story and upgraded ODFL shares to Buy in March, citing the company's 2021 recovery potential, firm freight pricing and margin expansion potential.

Universal Display

Universal Display (OLED) produces organic light-emitting diodes (LEDs) that power the screens and displays of consumer electronics. The company's technology is used in newer smartphones and smartwatches, tablets, laptops, televisions and the dashboard control screens of automobiles.

Demand for Universal Display's technology is rising. Unit sales of OLED display mobile phones are expected to rise 67% over the next five years and sales of OLED TVs are projected to double.

While the company's full-year earnings per share (EPS) dropped 4% in 2020 due to COVID-related costs, Universal Display is targeting sales growth of 24%-30% and rebounding EPS in 2021 as a result of the launch of next generation electronics such as Apple's (AAPL) iPhone 12, Samsung'S Galaxy Z Fold and next-generation computer notebooks – the latter a reported collaboration with Intel (INTC) and Microsoft (MSFT) – and a rollable TV from LG Electronics.

Roth Capital upgraded OLED shares to Buy in March, citing the company's favorable 2021 outlook and accelerating adoption of OLED technology as reasons for the upgrade.

The company issued a dividend increase in March, boosting the quarterly payment by 33%. And that came on the heels of a 50% annual dividend raise in 2020 and a 67% hike in 2019. One note of caution: approximately one-third of the company's sales are from China. This metric could suffer if U.S.-China trade relations deteriorate.

Newmont

  • Market value: $52.3 billion
  • Dividend increase: 38%
  • Dividend yield: 3.4%

Newmont (NEM) is the world's largest gold mining company as well as a major producer of copper, silver, zinc and lead. The company owns mining assets in North and South America, Australia and Africa.

Newmont has been recognized as the world's top gold miner for six years in a row. The company produced 5.9 million ounces of gold in 2020 and ended the year with 94 million ounces of gold mineral reserves. Rising gold prices helped Newmont achieve 154% growth in free cash flow and 101% adjusted EPS gains last year and the company holds $5.5 billion in consolidated cash on its balance sheet.

In March, Newmont announced plans to acquire the remaining 85.1% of Canadian gold mining company GT Gold it didn't already own for $311 million in cash. GT's principal asset is the Tatogga property, located in the Tahltan territory in northern British Columbia. Newmont already owns 50% of Galore Creek, another mining company in the Tahltan territory, so the acquisition should enhance operating efficiency.

Newmont is guiding for a 10% production rise to 6.5 million gold ounces in 2021, rising to 6.2-6.7 million in 2022 and 6.5-7.0 million in 2023. Steady production growth bodes well for continued cash flow gains and dividend hikes.

Newmont hiked its March 2021 dividend by 38% after a 60% boost to its quarterly dividend payment in December. Over the last five years, the company's dividend has grown at a phenomenal 79% annual rate, fueled by acquisitions and strengthening gold prices.

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