We have only a few precious weeks to go before the curtain goes down on 2017. It was quite a year for income investors, and it'll be missed; throughout 2017, new dividend raises seemed to hit the stage nearly every week.
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Three companies that stepped into the spotlight last week were HP (NYSE: HPQ), Nike (NYSE: NKE), and Union Pacific (NYSE: UNP). Here's a brief look at each of those raises.
Veteran IT company HP is adding 5% to its quarterly payout; the new distribution will amount to just under $0.14 per share.
HP's stock has risen by nearly 50% so far this year. That's impressive for a company that inherited what many believed was the less-promising chunk of the former Hewlett-Packard's business (Hewlett-Packard split into two separate companies in 2015).
Yet the PCs and printers that form the core of HP's product offerings have been more popular than many expected. In Q3, the company managed to grow its net revenue by 10% (to $13.1 billion). That growth rate has accelerated over the past four quarters, thanks in no small part to international sales.
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Net profit slumped by 11% in Q3, on the back of higher component costs, but the company is forecasting growth for the entirety of the current fiscal year, and for 2018.
HP's cash flow has been strong, with both operating and free cash flow seeing a rise on that higher top line. The latest quarterly figure was far more than enough to cover both the distribution and a set of stock buybacks. I see no reason that dynamic shouldn't continue into at least the near future.
HP's new dividend is to be paid next Jan. 3 to investors of record as of Dec. 13. It yields 2.6%, which beats the current 1.9% average of dividend-paying stocks on the S&P 500. Its payout ratio is a very modest 32%.
Leading athletic footwear and apparel maker Nike has declared an 11% increase in its quarterly payout to $0.20 per share. The company was quick to point out that this marks the 16th year in a row it has upped the distribution.
That's an accomplishment, but we can't really say the same about Nike's latest fundamentals. For its Q1 of fiscal 2018, the company reported essentially flat sales growth, and an uncomfortable 24% drop in net profit (caused, it said, by a decline in net margin, plus higher taxes and expenses). Recent research suggests, though, that competition from determined rivals is also contributing to the decline and stagnation.
Future periods might be better. The company has a five-year plan to get back in the growth game, and many of its points are sensible moves that could pay off handsomely down the road (hot new product launches, a push in e-commerce sales, etc.).
Lately, Nike has been spending well over its free cash flow on dividends and share buybacks. I'm not comfortable with that dynamic, and there's no guarantee that five-year plan will be a winner. So I'd be a bit wary, even though the company remains very profitable and always manages to raise that dividend.
Nike will hand out its upcoming distribution next Jan. 2 to stockholders of record as of Dec. 4. The new amount would represent a payout ratio of 35% on the most recent quarterly EPS, while its yield would be 1.4%.
Entering its final quarter of fiscal 2017, rail freight carrier Union Pacific has elected to lift its quarterly dividend by 10%, to nearly $0.67 per share.
Times are good for the rail sector just now, as the economy continues to hum along and the big transportation rival, trucking, copes with fuel prices that remain high on a historical basis. Union Pacific is one of the top names in the rail freight business and has numerous competitive advantages -- which include being one-half of a duopoly in the western part of this country.
As a result, business is good. Union Pacific's Q3 revenue grew by 5% to just over $5.4 billion. Net profit rose almost as tall, advancing by 6% to almost $1.2 billion. What helped the company increase those numbers was robust (80%) growth in the take from shipping industrial products, thanks to strong demand for frack sand in oil and gas production.
If the economy continues to move in the right direction, and America's frackers keep doing their thing, Union Pacific should perform nicely. As with Nike, though, I'd be a little worried about the company's tendency to spend well in excess of its FCF on dividends and share buybacks.
Union Pacific is to pay its next dividend on Dec. 28 to shareholders of record as of Nov. 30. It would yield a theoretical 2.3%; its payout ratio is 45%.
Not done yet
Don't despair, income investors. 2017 -- The Year of the Dividend Raise -- isn't over yet. We still have several weeks to go. In that time, we're almost guaranteed to see at least a few more hikes from noted companies; watch this space for details on the most compelling ones.
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