Nucor Increases Its Dividend Again

Nucor Corporation (NUE) has been around since 1940 and is the largest steel producers in the world. The company is the largest recycler of steel products and one of the largest recyclers of any metals. Nucor relies on its mini mills to efficiently melt scrap metal. Nucor operates 53 steel locations in the United States. The company has been very aggressive in expanding in recent years adding Harris Steel and DJJ to increase its reach.

Nucor’s chief competitors in the steel industry are US Steel, Mittal Steel, and AK Steel. The steel industry is a competitive marketplace with steel companies pricing power based entirely upon demand for steel products. The global recession has hit steel company stocks especially hard with most companies reporting negative earnings over the past two years. Nucor has been a shining star in a downtrodden industry.

Nucor is on pace to book $15.7 billion dollars in sales this year. That’s a 40% increase over last year’s results. Nucor is an effectively managed company producing almost the equivalent revenue of U.S. Steel with half the number of employees. The company’s great management can be seen in its fortified balance sheet and consistent operating results.

Last quarter Nucor earned a net profit of $23.5 million which resulted in earnings of 7 cents per share. This was below Wall Street forecasts of 11 cents per share. Any positive earnings growth is impressive in the steel industry due to the challenging environment. The bright spots were in quarterly sales which were up 33% and shipments which rose 10%. Unfortunately revenue was down 1%.

Nucor has the best balance sheet in the steel industry with $2 billion dollars in cash. The company has $6 per share in cash alone. Nucor generates nearly half a billion dollars in free cash flow. Margins have been depressed due to the pricing concerns. The company’s profit margin is 1.3% and operating margins are 3.7%. Return on equity and return on assets both came in at 2.7%.

Shares of Nucor currently trade at nearly 80 times this years earnings of 50 cents per share. The P/E is misleading considering that the company has faced a global slowdown not seen since the great depression. Nucor’s earnings are expected to rebound drastically and come in at $2.27 per share next year. Growth is forecast at 15% for the next 5 years which is remarkable for an industry which typically sees growth in the low single digits.

The company is a dividend darling. The dividend has tripled over the past three years and Nucor has increased its dividend 10 times from where it was back in the year 2000. The company has a history of rewarding shareholders having increased its dividend for 38 consecutive years. Nucor is currently yielding 3.50% as the company just increased its dividend to $1.45 per share last week.

Investors that want to own a piece of a great company with a growing dividend should feel comfortable buying Nucor Corporation.

Qualified Dividends

Qualified dividends are currently a subject of frequent discussion in the national news media, especially in relation to the future status of US federal government tax cuts. The IRS (Internal Revenue Service) classifies these dividends as dividends meeting certain requirements that allow them to be taxed at the lower long-term capital gains tax rate rather than the higher rate, according to an individual’s yearly income. Because Obama reached a deal with Republicans to extend the Bush tax cuts the current rates will stay in place.

For the years 2003 to 2007, such dividends were taxed at 15% or 5%, relative to the taxpayer’s income tax bracket. From 2008 to 2012, the tax rate for such dividends fell to 0% for each taxpayer within the 10–15% ordinary income tax brackets.

To satisfy the necessary criteria to be taxed at these rates, dividends must be paid on a date falling between January 1, 2003 and December 31, 2012. They must be paid by a US corporation, a business incorporated in a US possession, or a non-US corporation in a country qualified to receive benefits according to certain stipulations of a US tax treaty. Such dividends can also be paid on a non-US corporation’s stock which is eligible for trading in the US stock market. Also, the taxpayer must have held the stock for greater than 60 days during the 121-day requirement period. When calculating the number of holding days, count the day the stock was given up by the taxpayer, but not the day he or she originally acquired it.

The Bush tax cuts have been extended until 2012. Unless Congress votes to extend the Bush tax cuts (which became law during the administration of former US President George W. Bush), or passes other legislation to maintain current or similar tax rates on these dividends, these rates will change. After December 31, 2012, dividends of all types will be taxed at the rate of ordinary income, with income tax rates reverting to the rates prevailing in the year 2000. In fact, the maximum tax rate on dividends will soar to 39.6%.

The only fact that is certain today is that tax rates will increase for everyone concerned unless Congress takes action again in 2012. Decisions must be made and agreed upon by Congress and the President. Let’s hope they decide on a tax plan including multiple income brackets and qualified dividends which is agreeable with US taxpayers’ paychecks, profits (or losses), and pocket money.

Heinz Has A Sweet Dividend

Heinz is number one in the United States when it comes to ketchup. The company is headquartered in Pittsburgh, Pennsylvania and sells over 150 food products in over 200 countries worldwide. H.J. Heinz sells mustard, relish, pickles, gravy, vinegar, prepackaged meals, sauces, and frozen food products under the Ore Ida, Weight Watchers, Bagel Bites, Boston Market, TGI Fridays, and Budget Gourmet brand names.

Heinz competes in the diversified foods segments against Conagra and Campbell Soups. Conagra Foods is the biggest competitors to Heinz’s signature brand with its Hunt’s ketchup product. Heinz is still the biggest player in the industry with its $15.5 billion dollar market cap and $10.5 billion dollars in sales. Heinz’s gross margins and operating margins are superior to all industry competitors except for Campbell Soup.

Heinz has been able to increase earnings 6.40% over the past five years and is expected to increase earnings 6.8% over the next five years. The company generates 55% of its earnings from United States, Canada, and Mexico. Heinz had a solid earnings report last quarter in which the company saw earnings grow 8.60% despite sales declining 1.2%.

The company’s management team has done a great job of spreading the Heinz brand internationally. Heinz has a wide economic moat as the company’s name is synonymous with ketchup throughout the world. Management has also done a great job of managing company assets. Return on equity is extremely high at nearly 44% and return on assets is up to nearly 10%.

The company has bolstered its balance sheet over the past two quarters increasing their cash position to $728 million dollars. Heinz also reduced its debt load from $4.7 billion to $4.4 billion dollars. H.J. Heinz generates significant amounts of free cash flow bringing in over $1.4 billion dollars this year.

Sales growth is estimated at 3 to 4% over the next year by the company and earnings are expected to grow 7 to 10% over the next five years. Shares currently trade near their 52 week high of $48.80. The stock is a bit expensive since it is currently selling at nearly 16 times earnings, 2.4 time earnings growth, and 1.5 times sales. These numbers are slightly higher than the industry average.

Heinz pays investors $1.80 per share and the stock is currently yielding 3.70%. The current dividend yield is slightly higher than the historical yield of 3.50%. The current dividend payout is 61% of earnings. Heinz has a history of increasing its dividend with the company raising its dividend 7.1% six months ago. Heinz has increased its dividend nearly 67% over the last seven years for a compound annual growth rate of 7.6%.

In my opinion Heinz is a solid investment but is a little pricey at $48. The stock would be more attractive to income seeking investors at $45 a share.

A Bank With A Great Dividend

A few weeks ago we covered a bank stock with a nice yield for savvy dividend investors. That stock was M&T Bank. Today, we have located another bank stocks with an absolutely fantastic yield .This bank has been a solid stock performer for years and has gone largely unnoticed by Wall Street. The company is United Bankshares (UBSI).

United Bankshares has been around forever serving its customers since 1839. The company has its corporate headquarters in both Washington D.C. and Charleston, West Virginia. United Bankshares has 112 offices on the eastern seaboard and holds $7.5 billion dollars in assets. It is one of the largest bank holding companies in the world.

As everyone knows, the banking industry is a competitive marketplace. Banks compete for consumer and institutional investor dollars. United Bank competes against regional banks such as BB&T, Huntington Bancshares, and Suntrust Inc. Despite stiff competition, United has held up rather well. United Bank’s revenue growth is 40% higher than the industry average and operating margins are 100% higher than competitors. Profit margin is excellent at 25%

The bank has been one of the top performing banks during the crisis. The company’s revenue and net income have remained high over the past few years making the stock a consistent member of the U.S. Select Dividend Index. The company has over $700 million dollars in cash and $1 billion dollars in debt.

United Bankshares asset quality has been consistently rated highly. The company’s Tier 1 ratio is outstanding at 12% and its risk based capital ratio is 13.4%. This is well above the 10% ratio that most banks have to be at in order to be considered well capitalized. Return on equity was high at 9% and return on asset was slightly below 1%.

The company’s stock trades at 16 times this year’s earnings. The P/E ratio is equal to the industry average of most banking institutions. Earnings are expected to grow at an 8% annual rate over the next few years. Shares currently trade at just 1.5 times book value. The stock trades at 2 times earnings growth and 4 times the company’s sales.

United Bankshares dividend is rock solid. The company just increased it dividend for the 37th consecutive year. That’s quite an impressive streak. Over the past 37 years, the dividend has increased from just 6 cents a share to its present value at $1.20. United’s shareholders have to love the 9% annual dividend growth rate.

The current dividend yield is 4.60% which is higher than the historical yield of 3.90%. The current payout ratio is 75%.United Bankshares is an appropriate stock for investors looking for a solid dividend stock whose dividend will continue to increase over the next few years.

A Defensive Stock With A Generous Yield

Today, I would like to take a look at a company that is truly a defensive play. The company in question is the largest defense contractor in the United States and one of the largest defense contractors in the world. The company is actively involved in the defense, aerospace, and security industries. The defense contractor uses its advanced technology to create aircrafts, missile systems, combat systems, and satellite systems. This defense contractor earned over $45 billion dollars last year in sales.

The company is Lockheed Martin (LMT) As you may very well know, the defense sector is a very competitive industry. Contractors consistently try to underbid each other in order to gain access to lucrative government contracts. Lockheed Martin derives the bulk of its revenue from military sales to the government. 70% of the company’s revenue comes from defense spending alone. The main competitors in the industry are Northrop Grumman, Boeing, and Raytheon.

The biggest concern for the industry is government cutbacks. The federal government is expected to cut back on federal IT spending and combat machine spending such as strike fighters. The government has been shifting from higher margin aircrafts to lower margin aircrafts. Lower defense spending would directly impact the company’s revenue stream. The company should be okay however since it still has a sizeable backlog with over $70 billion dollars in orders.

Lockheed Martin is a cash cow generating nearly $2.8 billion dollars in free cash flow last year. The company has over $3.4 billion dollars in cash on the balance sheet. This is good to see considering that the company has sizable pension obligations for its employees. Profit margins are slim at 9% but are better than industry competitors. Revenue growth was also higher than competitors at 5.6% and Lockheed’s gross profit over the past year was $4.2 billion dollars.

Shares of Lockheed Martin appear undervalued at under $70 per share. The stock is trading right in line with its historical and future growth rates. The company has been able to grow earnings at an 8.5% rate over the past five years and is projecting 8% growth over the next 5 years. This is cheap considering that many competitors shares are trading well above their growth rates.

Lockheed Martin is worth owning for the dividend yield alone. The stock has a 4.3% yield which is nearly twice its historical 2.2% yield. The company has been returning cash back to shareholders by bumping up its dividend yield over the past few years. Investors have no reason to worry about the safety of the high payout since the company only pays out 34% of earnings via dividends.

Value investors looking for a long term stock with a dividend that is likely to increase over the next few years should turn their attention to Lockheed Martin.

Dividend Mutual Funds

To understand the advantages that can be gained by purchasing dividend paying mutual funds, it may be helpful to understand exactly what the name means. A mutual fund is a collection of bonds, stocks, and money markets that is professionally managed. Investors join a pool of other investors and purchase units in the fund. The amount of the fund’s profit (or loss) is apportioned based on the amount of each investor’s position. Because investors deal with the fund, shares are easy to buy or sell.

Dividends are payments made by a company or a fund to its shareholders. They indicate that the company has made a profit. Typically, paying dividends is a sign that a company’s financial position is solid. Struggling companies either do not have the cash or need all their cash to keep the doors open. The payment of dividends can make the company’s stock more attractive to new investors and keep current investors pleased with performance.

Mutual funds typically pay dividends quarterly. How the dividends are taxed depends on the type of fund. For example, real estate investment trusts and bond funds do not generate qualified dividends in the eyes of the Internal Revenue Service. Stocks and most utilities, on the other hand, receive better treatment for taxes as long as a minimum of sixty days has elapsed between purchase and the date shareholders qualify for a dividend.

Mutual funds offer a convenient method of tapping into a dividend stream. There is no need for the investor to try to identify individual stocks. Most funds are comprised of dozens or even hundreds of stocks, so the investor is instantly diversified. With many stocks in the fund, the risk is minimized, since no one company can have a major impact on the investment. In addition, since purchasing mutual funds does not generate a commission for the broker, it is possible to make small investments at frequent intervals without generating large fees. All of these factors make mutual funds a safer and more economical method of investing than choosing individual stocks.

When purchasing dividend paying mutual funds, investors should look for an established fund with a successful record of accomplishment. A good income fund will feature high-yield stocks as well as a diversified portfolio that offers the potential for dividend growth. Funds must state the scheme and goals under which they operate, so reading the prospectus carefully and educating oneself on investments in general are advisable.

Investors should realize that higher yield stocks often carry a greater risk. Choosing a well-diversified fund minimizes the risk of loss. Since there are so many funds from which to choose, investors should select one that has a portfolio with which the investor is comfortable. Making a mutual fund that pays dividends part of an investor’s portfolio can be an excellent option. However, investors should remember the mantra of diversification, and make sure that their portfolios include other investment options as well.

Intel Increases Its Dividend

You have probably heard of Intel Corporation before. The company’s name is plastered over countless electronic products. As a matter of fact, the company probably built the microprocessor that powers your personal computer, tablet PC, netbook, smartphone, or electronic device. Intel owns the microprocessor market for personal computing. The company has been around since 1968 and its best days are still ahead of them.

The company’s chief competition in the processing market is Advanced Micro Devices. AMD is still a small player with a market cap of just $5.2 billion dollars and revenue of $6 billion dollars. Intel the dominant player in the industry with a market cap of $120 billion dollars and annual revenue of $46 billion dollars. The recent purchase of McAfee will only help to bolster the company’s earnings power.

The earnings for Intel will only increase as the consumer demand for new electronics continues to grow.  Intel has a great management team as well that has been able to deliver consistent results for the company. The company has a 24% return on equity and a 17% return on assets. Operating margins were high at 35% and profit margins were high as well at 25%.

The stock is not the steal that it was at $18 but Intel is still cheap at $21 a share. The stock trades at just 10.5 times earnings and a 0.83 price to earnings growth. This is higher than the 7% growth rate of the past five years but below the 12.8% estimated growth rate of the next five years.

Intel is more than just great earnings. Intel has the kind of balance sheet that other companies dream about. The company has $20.7 billion dollars in cash on hand and generates $ 14.5 billion in free cash flow. Intel has 10 times as much cash as long term debt on the balance sheet. That’s remarkable. The company has nearly $4 a share on its balance sheet in cash alone.

Intel offers capital appreciation and great dividend as well. The average dividend payout has been 2.3%. The stock is currently yielding 3% and raised its dividend 15% to 72 cents per share. That is an effective yield of 3.3%. The company can easily cover its dividend as Intel pays out just 33% of earnings via dividends. There is plenty of room for more dividend increases in the future.

Intel is an attractive stock as the tech giant just reported that it expects its earnings to be the best ever in 2011. Long time investors that are seeking a blue chip stock with a growing dividend may find that Intel has the right stuff for their portfolio.

Blackrock Equity Dividend Fund

The Blackrock Equity Dividend Fund I (MDDVX), formerly known as the ML Equity Dividend Fund, seeks current income and long-term total return, primarily by investing in an equity securities portfolio, putting its focus on issuers with good capital appreciation prospects. Normally, it invests a minimal 80% of assets in securities paying dividends. The remaining holdings may include non-convertible preferred stock and convertible securities, with about 16.29% in foreign stocks.

Started on November 25, 1987 (with Investor A class shares first offered on October 21, 1994), the Blackrock Equity Dividend Fund, is a large value fund with a total market cap ranging around $10.3 billion. It has a 5-star Morningstar rating with a low to average Morningstar risk rating within category. It has a Lipper Classification of an Equity Income Fund, and a 2.28% SEC yield and dividends paid quarterly.

Among the top holdings in the Blackrock Equity Dividend Fund are ExxonMobil Corporation, BHP Billiton Limited, AT&T Inc Communication, Churchill Ventures Ltd, J.P. Morgan Chase, Rio Tinto ADR, Total SA ADR, General Electric, Deere & Company, Raytheon Company, Chevron Corporation, Wells Fargo Company, Caterpillar Inc, United Technologies, and El Dupont de Nemours.

In terms of sector weightings, the Blackrock Equity Dividend Fund holds about 14.9% of its assets in industrial cyclicals, followed by about 14.3% in consumer staples, 14.1% in energy, 13.8% in financials, 10% in materials, 7.6% in utilities, 6.0% in telecommunication services, 5.0% in healthcare, 4.8% in consumer discretionary, 4.1% in information technology, and 5.4% in cash and cash equivalents.

The expense ratio of the Blackrock Equity Dividend Fund is 1.08% which is in the average range for its category. Initial maximum sales fees are 5.25% with a minimum initial investment of $1,000, an initial IRA or AIP investment of $50, and minimum subsequent investments of $50.

As of September 2010, the fund has returns of 5.2% over the past 10 years, 2.8% over the past 5 years, -5.7% over the past 3 years, and 10.5% over the past year, with a year-to-date trailing return of 3.5%.
The Blackrock Equity Dividend Fund is managed by Robert M. Shearer and Kathleen Anderson, and is open to new investors.

The above information regards Investor A class shares, although Investor B (MBDVX), Investor C (MCDVX), Class R (MRDVX), Institutional (MADVX), and Service class shares of the Blackrock Equity Dividend Fund are also available.

Safe Dividend Stocks List

Recently we released a new feature for our Top Dividend members:

The safe dividend stock list.

The safe dividend list currently has 70 stocks listed on it, each of which has raised its dividend for 20 years or more. Many of these stocks are also on the dividend aristocrats list. The dividend aristocrats list is published by the S&P website.

We’ve used those stocks to create our safe dividend list. We then and added key financial data like the dividend growth rate, payout ratio, income growth rank and industry rank. We’ve used those key dividend data points to rate each stock, giving additional weight to the fact that each of these stocks has been paying and raising it’s dividend for at least 20 years.

Most of the stocks listed have excellent payout ratios. But even stocks that have high payout ratios on this list could be considered as a solid dividend investment because of their excellent track record of raising their dividend. For those that like the high yields there are currently 5 stocks on this list that yield 5% or more.

Top Dividend members can access the safe dividend list here. If you are not a member but want to get access to this list you can sign up here: Top Dividend Stocks.

A High Yield Utility Stock

Southern Company (SO) is the fourth largest utility company in the United States of America. The company is responsible for providing power to 4.3 million customers in the southeastern portion of the U.S. The company serves customers in Alabama, Florida, Georgia, and Mississippi.

The utility company was founded in 1945 and has a long history of providing service to its customer base. The company relies heavily on coal, nuclear, and natural gas to provide energy to customers. Southern Company was recently granted approval by the federal government to build two new nuclear plants in Georgia.

Southern Company has generated over $15 billion dollars in revenue each of the past three years. Earnings have grown 7% per annum each of the past five years. Growth is pegged at 5% per annum for the next five years. The company reported impressive results in its latest quarterly report.

Total sales were up 9.4% and electricity sales were up 6.5% year over year. Industrial sales were up 7.3% which is important since the company derives nearly 30% of its earnings from this segment. The greatest growth came from the residential sector which increased 14% per year. The company should continue to benefit from a continued economic recovery since any uptick in industrial production will lead to greater growth in earnings.

The company operates in a great industry with high barriers to entry for new competitors. The utility industry is incredibly capital intensive and is heavily regulated by state and federal governments. This is advantageous to Southern Company since it enables the company to have a virtual monopoly in its region. Centerpoint and Entergy Energy are the main rivals of the company with both of these companies operating in the Mississippi market as well.

Utility companies are popular with income investors for their great dividend yields. Southern Company has increased its dividend for nine consecutive years. The company is currently paying investors $1.82 a share which is a 4.70% yield. This is only slightly above the historical yield of 4.50%. The company is expected to earn $2.39 per share which places the dividend payout rate of 72%.

Southern Company has been on the rise just recently hitting its 52 week high of $38.62. Even during the global economic crisis, the stock bottomed out at $27 per share. Southern Company is a safe investment as the company has been able to achieve consistent stable growth and sports a safe dividend. The stock currently trades at 15 times earnings which is not unreasonable for the company. Investors should feel comfortable purchasing shares in the mid 30’s.