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Raises All Around: Dividend Increases for the Month of October (Part 2)

Every week of every month, we try to impress upon D&I readers the importance of dividend increases.

After all, it’s consistent, aggressive dividend growth – not fat, initial yields – that hold the most long-term wealth-building and income-generating power.

With that in mind, we provide a rundown each month on companies announcing dividend increases in hopes of uncovering new opportunities. And it’s time to finish up the job that I started earlier in the week, when I discussed the recent dividend increase from American Electric Power (AEP).

Today, I’m singling out two more companies that recently hiked their dividends, including one that upped its payout by a staggering 100%.

Trick or Treat?

For over a century, Huntington Ingalls Industries, Inc. (HII) has been designing, building and servicing nuclear and non-nuclear ships for the U.S. Navy and Coast Guard.

Earlier today, the company doubled its quarterly dividend from $0.10 to $0.20 per share.

It’s not every day that such a dividend boost is announced. Heck, I can’t remember a single day this year when it happened.

But that’s not all. Management also doubled the company’s stock repurchase program from $150 million to $300 million.

President and CEO, Mike Petters, said, “These increases demonstrate continued confidence in our 2015 financial target of [9%-plus] operating margins, as well as our commitment to a balanced capital allocation strategy.”

So what’s not to like here, right? Sadly, that would be the current yield.

Even after the boost, the stock yields only 1.1%. But don’t get bummed out.

Huntington started paying a dividend just last year. If the first increase is any indication, future dividend increases could make the yield competitive in a hurry.

Its dividend payout ratio checks in at less than 20%, meaning the company can afford to keep handing out generous dividend increases.

Add it all up, and Huntington is a contender. Let’s put it on our watch list. If the dividend increases continue, it’ll be time to add it to our portfolios.

AFLAC Delivers

Earlier in the month, I predicted that it wouldn’t be long before executives at supplemental health and life insurerAFLAC (AFL), decided to put a little extra jingle in shareholders’ pockets.

Sure enough, the company just announced a quarterly dividend hike of almost 6%, to $0.37 per share.

The increase marks the 31st year in a row that AFLAC has raised its dividend. We can pretty much bank on another hike next year… and the year after that and the year after that, too.

At current prices, the stock sports a 2.3% yield, which isn’t overly compelling. But it’s right in line with 10-year U.S. Treasury bonds.

As I mentioned last time, though, the stock offers something Treasury bonds don’t – significant capital appreciation potential.

While some dividend payers now trade at frothy valuations, shares of AFLAC change hands at just nine times earnings. That works out to a 47% discount to the average stock in the S&P 500 Index and a 60% discount to the average insurance company.

Combine the modest (but growing) yield with the potential for double-digit price appreciation, and you see that AFLAC, unlike Huntington, is one dividend grower worthy of our attention.

Safe investing,

Louis Basenese