The Monday Yield: Cisco, Westlake and MGE Energy
Each Monday I’ll serve up a grab bag of dividend-paying stocks – some that you’ll want to add to your watch list, and others you should avoid at all costs.
For the “Monday Yield” I’ll be monitoring companies with high (or low) yields, recent dividend increases (or lack thereof), excellent (or horrible) growth potential, or just a ton of recent media attention.
These aren’t definitive judgments. The point is to provide D&I Daily readers with a quick round of dividend stocks to act as a jumping point. Or food for thought, if you will.
So, without further ado, let’s get to this week’s lineup.
First on deck…
Cisco Systems (Nasdaq: CSCO): Technology companies aren’t commonly known for their dividends. There are outliers, of course, and if Cisco keeps it up, it just might be one of them.
While it’s only been paying dividends since 2011, it just made its third increase, raising its dividend 75% from $0.08 to $0.14 (or $0.56 annualized).
That’s not a lot of history to go on, but it could mean the start of a committed dividend growth plan. And with a 3.2% yield, Cisco is definitely starting out on the right track.
What’s more, according to its fourth-quarter earnings call, it’s going to keep on trucking. “Going forward, we intend – through our capital allocation strategy – to return a minimum of 50% of our free cash flow annually through dividends and share repurchases.”
Translation? They might have to reduce share repurchases to fund it, but with free cash flow hovering around $10 billion over the last five years and $1.58 per share in 2011, Cisco certainly has the means to keep growing its dividends. As one Morningstar analyst puts it, “There is no question that the firm can fund, and steadily increase, its dividend payment far into the future.”
MGE Energy (Nasdaq: MGEE): MGE is a utilities holding company, operating electrical generation, purchase and distribution through its subsidiaries. Yup, boring. But that’s what makes it so dependable!
Case in point: It’s been paying and increasing dividends for a consecutive 37 years, just recently raising its dividend by 3.3% from $0.3895 to $0.3951, or $1.5804 annualized.
Still, its yield clocks in at a lackluster 3.04%, and you shouldn’t expect that to grow too much, as it’s been hovering between 3% and 4% for the last five years.
Nevertheless, the stock itself is dependable, performing about neck-and-neck with the diversified utilities sector over 10 years, averaging total returns of 9.52% versus 10.27% for the sector as a whole. (Both of which, by the way, beat the S&P’s 6.44%.)
Lastly, while the stock’s price-to-earnings (P/E) ratio of 19.3 is slightly expensive compared to the industry’s average P/E of 18.4, you may find that MGE’s dependability as a dividend payer justifies a possible overvaluation.
Westlake Chemical Corp. (NYSE: WLK): The last item on today’s docket is a chemical manufacturer that managed to concoct quite an astounding dividend increase. This week it bumped its dividend from $0.0737 to $0.1875, which amounts to a 150% increase.
What’s behind it? The company landed a swell of tax benefits that contributed to a quarterly net income increase of 47%.
Is this a sign of a true dividend payer? Or should we chalk it up to a flash in the pan? Long story short, it’s too early to tell. Westlake has been paying (and increasing) dividends for just over seven consecutive years.
Granted, it has a longer history of paying than today’s other new kid on the block: Cisco. But while Cisco has told shareholders to expect dividend increases going forward, Westlake has refrained from offering any explicit commitment.
If anything, waiting to see what comes out of Westlake’s next earnings call seems prudent.
That’s it for this week’s dividend stock roundup. Stay tuned!