Here's to Dividends
There's nothing like cold, hard cash to ease investing anxiety. And what could be better than companies that consistently raise dividends? We found six that meet all our criteria.
By Steven Goldberg, Contributing Columnist
From Kiplinger's Personal Finance magazine, March 2005
Advertisement
Saws to Security
Managing change can be tricky. But Stanley Works (SWK) is measuring up. For generations, Stanley has been a leading toolmaker. In recent years, it has resisted the price squeeze on its products from giant retailers, such as Home Depot, Lowe's and Wal-Mart, better than most companies. What's more, the booms in residential construction and remodeling have given Stanley a nice tailwind.
But Stanley Works isn't standing still. The firm hired John Lundgren as CEO in 2004, and he's accelerating a transition to a mix that includes more sales of products with higher profit margins. The big growth area for Stanley is security, which now accounts for 25% of revenues. The company supplies automatic doors, security cameras and related software to retailers, office buildings and airports. Sales of tools and other products to big retailers, which usually carry lower profit margins, are down to 35% of revenues, and falling. Industrial tools account for the remainder of sales. "We would like security to be 50% of revenues within five years," Lundgren says. "That would mean that half of our business is high-growth, high-margin and less volatile."
Those projected improvements are only partially reflected in the stock's price. Analysts expect Stanley to earn $3.24 per share this year. But Mark Giambrone, an analyst with Vanguard Windsor II fund, thinks that earnings will beat analysts' estimates. He particularly admires the company's ability to integrate businesses it acquires and make them more profitable.
Meanwhile, Stanley has hiked its dividend 37 years in a row and has paid a dividend for 128 straight years. Now that's dependability.
Thrift on Sale
When the home-mortgage business was soaring, so was Washington Mutual (WM), a fast-growing thrift that is now the nation's largest. Then came three stumbles. When rates jumped in mid 2003, the firm's hedges -- which were supposed to insulate it against rising rates -- didn't work as advertised and earnings suffered. During the second quarter of last year, the company endured a rerun when hedges designed to insulate its mortgage-servicing business likewise failed. Then, when refinancings waned, the Seattle-based thrift didn't cut costs quickly enough.
CEO Kerry Killinger is tackling the problems. He hired an outside firm to make sure hedges operate properly and brought in a new chief operating officer. "Give them credit for admitting they needed help," says Tom Carney, an analyst with Weitz Value fund, which owns the stock. "They want to make sure they get it right."
Other parts of the business are doing better. Washington Mutual has more than 1,500 branches, which are smaller than most banks', cheaper and quicker to build, and designed to be more attractive to consumers. "They have a very non-bank feel," says Carney. "You don't walk in and see tellers in glass cages."
With all those branches, takeover talk is in the air. Investing on takeover anticipation is always problematic, but there's no question that Washington Mutual is cheap. It has a 4.4% yield and sells at 11 times 2005 estimated earnings of $3.60 a share. Moreover, those earnings are partly depressed because of the start-up costs of opening 250 new branches annually. The new branches are bringing in lots of business. What's more, Washington Mutual has been unusually successful in selling multiple products to customers, most of whom start with home loans.
--Research: Jessica Anderson
Dividend champs: They boost their payouts regularly
These six companies have raised their dividends at least ten years in a row, and their stocks yield at least 1.7%, the market's overall yield. The roster includes three midsize companies and three giants.
|