Last week industrial conglomerate General Electric (GE) raised distributions by 17% to 14 cents/share. Equity investors viewed this boost in a positive way, sending GE stock price higher for the day. This was the second dividend increase for GE in 2010, after the company boosted its payout by 20% earlier this year to 12 cents/share. Dividend increases are typically a bullish sign from companies, which shows their confidence that their business would be able to generate sufficient cash flow in order to pay the higher distribution amount. For GE however, this stunning 40% increase in the quarterly distribution comes after it cut dividends from 31 cent/share to 10 cents/share in 2009 during the financial crisis. Furthermore, investors who are hoping that GE might eventually restore its dividend payment to the 2008 levels, should realize that it might take several years for this to happen.
The reason behind this is that in order for a company to function effectively, it needs to reinvest a portion of its earnings back into the business either to expand, innovate or maintain its position in the marketplace. With GE expected the earn $1.12/share in 2010 and $1.27/share in 2011, this puts a limit on the amount of dividends the company could distribute in the near term. That being said, I would wait for a few years in order to see whether General Electric (GE) would be able to generate earnings growth which will support a growing distribution over time.
Other companies which increased distributions last week include:
Nucor Corporation (NUE), together with its subsidiaries, engages in the manufacture and sale of steel and steel products in North America and internationally. The company announced a 0.70% increase in its quarterly dividend to 36.25 cents/share. This marked the thirty-eight consecutive annual dividend increase for this dividend champion. Yield: 3.50% (analysis)
Erie Indemnity Company (ERIE) provides sales, underwriting, and policy issuance services to the policyholders of Erie Insurance Exchange in the United States. The company announced a 7.30% increase in its quarterly dividend to 51.50 cents/share. This marked the twenty first consecutive annual dividend increase for this dividend achiever. Yield: 3.20%
Edison International (EIX), through its subsidiaries, engages in the supply of electric energy in central, coastal, and southern California. The company announced a 1.60% increase in its quarterly dividend to 32 cents/share. This marked the eight consecutive annual dividend increase for Edison International. Yield: 3.40%
C.H. Robinson Worldwide, Inc. (CHRW) operates as a third party logistics company. The company announced a 16% increase in its quarterly dividend to 29 cents/share. This marked the fourteenth consecutive annual dividend increase for this dividend achiever. Yield: 1.50%
Stryker Corporation (SYK), together with its subsidiaries, operates as a medical technology company worldwide. The company operates in two segments, Orthopaedic Implants and MedSurg Equipment. The company announced a 20% increase in its quarterly dividend to 18 cents/share. This marked the eighteenth consecutive annual dividend increase for this dividend achiever. Yield: 1.40%
Roper Industries, Inc. (ROP) engages in designing, manufacturing, and distributing energy systems and controls, scientific and industrial imaging products and software, industrial technology products, and radio frequency products and services. The company announced a 16% increase in its quarterly dividend to 11 cents/share. This marked the eighteenth consecutive annual dividend increase for this dividend achiever. Yield: 0.60%
Occidental Petroleum Corporation (OXY), together with its subsidiaries, operates as an oil and gas exploration and production company primarily in the United States. The company announced a 21% increase in its quarterly dividend to 46 cents/share. This marked the ninth consecutive annual dividend increase for this dividend stock. Yield: 2%
The Toro Company (TTC) engages in the design, manufacture, and marketing of turf maintenance equipment and precision irrigation systems to help customers worldwide care for golf courses, sports fields, public green spaces, commercial and residential properties, and agricultural fields. The company raised its quarterly distribution by 11% to 20 cents/share. The company has raised dividends for seven years in a row. Yield: 1.30%
Instead of speculating whether GE would be able to raise distributions in the future, investors should be focusing on the companies which already have a history of raising dividends, and no dividend cuts. Several such companies which I plan on researching further include Occidental Petroleum Corporation (OXY), Stryker Corporation (SYK), Erie Indemnity Company (ERIE) and Edison International (EIX). I have recently added to my position in Nucor (NUE), which is expected to generate sufficient amount of earnings to cover distributions in 2011 and beyond on strong global demand.
Full Disclosure: Long NUE
Relevant Articles:
- General Electric (GE) raises dividend; 15 other companies follow suit
- General Electric (GE) Cuts the Dividend
- Nucor Corporation (NUE) Dividend Stock Analysis
- Another reason for companies to pay dividends