I spoke too soon. In the previous installment of this series, I stated that we were about to enter a fallow post-earnings season period with fewer dividend raises.
Whoops. Last week we saw a fresh batch of raises, including three top names in their respective industries — consumer-goods giant Colgate-Palmolive (NYSE:CL), high-rolling casino operator Wynn Resorts (NASDAQ:WYNN), and powerhouse chipmaker Qualcomm (NASDAQ:QCOM). Read on for the details.
Saying that Colgate-Palmolive is raising its quarterly dividend is almost like saying the grass is green. The consumer-goods megalith is one of the most regal of the Dividend Aristocrats, with an annual dividend raise streak that stretches back over 50 years. The latest in a very long line of increases will see the company lift its payout by 5% to $0.42 per share.
That’s the good news. The bad news is the company’s recent performance. In all, 2017 was a relatively weak year. Net sales inched up by only 1.7% to $15.5 billion, while adjusted net profit increased by over 4% to land at $2.5 billion. Cost-cutting and increased advertising spend were two of the key reasons for these fairly modest increases.
My colleague Brian Stoffel has speculated that Colgate-Palmolive’s long-established dividend might be at risk because of changes in technology and the shifting tastes of consumers. I think he’s got a good argument there; although the company has sufficient cash flow to keep up those dividend raises for the time being, I’m not 100% sure this is a buy-and-hold-forever income play.
Colgate-Palmolive’s upcoming distribution is to be handed out on on May 15 to stockholders of record as of April 20. Its payout ratio is 56%, and it would yield 2.4% on the most recent closing stock price — comfortably above the current 1.8% average yield of dividend-paying stocks on the S&P 500.
2018 has already been quite a year for Wynn Resorts. The company’s top global region is on a serious upswing, yet its founder and namesake, Steve Wynn, stepped down abruptly, following allegations of sexual misconduct. Nonetheless, Wynn Resorts declared a dividend increase, saying its quarterly distribution would get a hefty 50% increase to $0.75 per share.
These days, most of Wynn’s take comes from the busy Chinese gaming enclave of Macau. After years of serious revenue declines because of a government crackdown on casino junket operators, the region has come roaring back. Its full-year 2017 take was 19% higher on a year-over-year basis, the first annual increase since 2013.
This propelled Wynn’s revenue 44% higher to just over $6.3 billion, while adjusted net profit rose by 62% to over $560 million.
The loss of Steve Wynn, a towering figure in the industry, is going to sting. But the company is well primed for future growth; Macau should remain a vibrant market, while a new casino near Boston is scheduled to open its doors next year. But Wynn the company has a bright future ahead of it. Barring another government crackdown in Macau, I’d bet that the new dividend will at least be maintained for now.
Wynn hasn’t yet set the record and payment dates for the new dividend. Regardless, it would yield 1.6% and boast a payout ratio of only 36%.
Qualcomm is dialing up a new quarterly dividend. The company has declared that its next payout will be $0.62 per share, a 9% increase.
Qualcomm is very profitable, netting $1.5 billion in profit on $6 billion in revenue in its most recently reported quarter. It’s a power player in the field of chips for mobile devices, and it draws much of its revenue from technology licensing activities.
That’s not what has driven up the stock’s price over the past few months, however. In late 2017, acquisitive Asian chipmaker Broadcom (NASDAQ:AVGO) made a play to buy out Qualcomm with a mix of cash and stock. This and a subsequent higher bid from Broadcom were rejected, but the soap opera is still playing out.
Complicating matters is Qualcomm’s own acquisition activity. Apparently, it’s about to land its own large takeover target, auto-computing specialist NXP Semiconductors.
So there are deals whipsawing back and forth, and we don’t yet know how the whole mess is going to settle. As for Qualcomm’s internal resources, it has more than enough free cash flow to pay for this raised dividend, plus a round of share buybacks. Still, given that the company’s future ownership and structure is up in the air, it’s hard to gauge the viability of this new payout. Income investors should exercise caution here.
The new $0.62-per-share amount will, in the company’s words “be effective for quarterly dividends payable after March 21, 2018.” It didn’t get more specific. The theoretical yield is 3.9%, while the payout ratio stands at 63%.
I like it when my pessimistic assumptions turn out wrong. Last week turned out to be another good one for dividend increases, after all. 2018 has been a great year for lifts so far. Let’s hope that trend will last.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool owns shares of Qualcomm. The Motley Fool recommends Broadcom Ltd and NXP Semiconductors. The Motley Fool has a disclosure policy.