Did last week end with some kind of early Black Friday for dividend-paying stocks?
It certainly seems that way, as a score of companies declared fresh dividend raises in advance of that famous shopping holiday. Among these were Automatic Data Processing (ADP +1.36%), a Dividend Aristocrat that has raised their payouts at least once every year for a minimum of 25 years running, and Universal (NYSE: UVV), which would qualify as a Dividend Aristocrat if it were a member of the S&P 500.
Here's a look at their raises, and that of Six Flags Entertainment (SIX +0.00%), another of last week's lifters.
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Universal
Would-be Aristocrat Universal is bumping its quarterly payout 2% higher to $0.55 per share. The company is also launching a $100 million share-repurchase program.
Universal is a leaf-tobacco supplier to makers of tobacco products. Although revenue and net income aren't as high as they've been in the past, Universal still manages to do well. In its most recently reported quarter, the company grew its revenue by 7% on a year-over-year basis, to $488 million. Net profit increased more precipitously, at 21%, to just over $26 million.
UVV Revenue (Annual) data by YCharts
The U.S. market saw volume declines during the period, but other regions more than made up for the slack. That, plus reduced costs, pushed profitability well higher.
Although traditional smoking is going the way of the Dodo bird, technology continues to bring replacement products, like e-cigarettes, to a market that still craves a smoke. No matter how advanced these products might be, they still need the kind of inputs Universal specializes in. It should remain a major supplier to the industry well into the future. As such, it has an excellent chance to maintain its Aristocrat status.
Universal's increased dividend is to be paid on Feb. 5 of next year, to shareholders of record as of Jan. 8. The payout ratio on the enhanced distribution is 54%, while its yield would be 3.9%. That's more than double the current 1.9% average of dividend-paying stocks on the S&P 500.
The company didn't provide an end date for its share-buyback initiative.
Automatic Data Processing
Actual Aristocrat and sturdy business-services company Automatic Data Processing is lifting its quarterly disbursement by almost 11%, to $0.63 per share.
ADP Dividend data by YCharts
Despite some recent turmoil with a high-profile activist investor displeased with the company's performance, ADP has been humming along lately. The inaugural quarter of its fiscal 2018 saw the company post revenue growth of 6%, to $3.1 billion for the period, with net income rising by 9% to almost $402 million.
ADP said this was due to its "differentiated client-centric solutions and our continued progress in improving the client experience."
The company believes it will continue to rope in clients, thanks in no small part to its investment in "next-generation solutions" that can deliver more specialized services to customers. ADP is forecasting revenue growth of 6% to 8% this fiscal year, and a 5% to 7% improvement in its adjusted bottom line. Both estimates, by the way, represent increases over the company's previous forecasts.
The company has recently gotten into the habit of spending a bit more than its FCF for dividends and share repurchases, which would trouble me if it didn't have such a long track record of lifting its payout. I think it'll find a way to keep increasing that dividend, as it has for over four decades.
It will next be handed out next Jan. 1 to stockholders of record as of Dec. 8. It yields 2.3% on the most recent closing share price, and the payout ratio is 69%.
Six Flags
Amusement-park operator Six Flags (SIX +0.00%) is lifting its quarterly dividend by 9%. The new payout amounts to $0.70 per share.
This declaration came not long after the company's Q3 results announcement, which featured the encouraging tidbit that it booked a new all-time high revenue figure for the first nine months of a fiscal year -- $1.1 billion, to be exact.
However, this represented only 2% year-over-year growth, on the back of a similarly weak increase in total park attendance. Although headline net profit showed a nice increase, this was largely due to a decrease in stock-based compensation expenses. A more revealing line item, "modified" EBITDA, inched up only marginally to $471 million.
The company blamed the recent natural disasters for this weakness. I suspect the problem is deeper -- there's strong competition in the theme-park industry, and such venues must also contend with other forms of entertainment for audience attention.
As a result, Six Flags said it probably won't reach its aim of topping $600 million in annual modified EBITDA this year. It's now targeting a figure of $750 million by 2020. But its debt has climbed, and neither its revenue nor profitability seems to be going anywhere.
This stock is tempting for its dividend yield of 4.3% at the current share price, but the company's payout ratio has climbed to dangerously unsustainable levels. I'm not sure this is a thrill ride worth taking.
SIX Payout Ratio (TTM) data by YCharts
Six Flags will pay its upcoming distribution on Dec. 11 to investors of record as of Nov. 30.
Conclusion
2017 has been a year brimming with dividend increases. Are we due for a breather soon? I'd say probably not, as many companies hold off on their raises until the final weeks and days of the year. There will be more Black Fridays (and Thursdays, and Wednesdays) coming up for income investors before we hit 2018.
