Taking Stock of 5 Important Dividend Increases

Once again, we have seen a bevy of dividend increase announcements -- with several from the tech sector and one from the leisure industry. Let's dig into them and see how their new offerings stack up. First up, is Microsoft Corporation , which boosted its quarterly dividend by 11% to 51 cents per share from 46 cents per share. This marks the 15th consecutive increase for this Dividend Contender and brings the current dividend yield to about 1.4%. It's not exactly the most earth-shattering dividend yield we've discussed, given that it's below the current 1.9% dividend yield for the S&P 500. But Microsoft also announced a new $40 billion share repurchase program. That certainly sweetens the pot, but should the company complete that program at or near current share price levels, it would shrink the outstanding share count by 3.5%-4.0%. And that program would also have positive implications for the company's forward earnings per share, or EPS, as it chews through that program, given that EPS is calculated by net income divided by the outstanding share count. Given the $133.8 billion in cash and short-term investments on Microsoft's balance sheet exiting the June 2019 quarter, it stands to reason the company will likely be an active repurchaser of stock in the coming quarters. Semiconductor equipment company Lam Research also upped its quarterly dividend by a far smaller 4.55%, but the overall dividend per share after that boost hit $1.15 per share. The annualized dividend yield matches the S&P 500, but to be fair it only began paying a dividend in 2014, which makes this its fifth year serving up dividend increases to shareholders. While we are poised to see an explosion in 5G chipset demand in the coming quarters, we have to remember the semiconductor capital equipment is a cyclical one and a steep downturn could limit Lam's ability to deliver future dividend increases. While we can root for Lam to continue on its path to be a Dividend Contender, we will need to carefully watch not only the shifts in semiconductor equipment demand, but also be wary of competitive, if not overly competitive, pricing by Applied Materials and Tokyo Electron during a downturn in demand, which would add to profit and cash flow pressures. LRCX shares offer a dividend unlike those for Applied Materials, which can make them interesting for dividend seeking investors. But a surer dividend stream can be found with other Dividend Contenders that also offer a higher dividend yield. Sticking with junior dividend-growing companies, technology peripherals company Logitech International recently boosted its annual dividend for the fifth time. The increase of more than 11% brought its dividend payment to 74.5 cents per share or a 1.8% dividend yield at the current share price. We need to note that Logitech is one of those dividend payers that strays for the traditional quarterly format, instead of paying its dividend in full during the September quarter. So how does its dividend metrics break down? Based on the current outstanding share count of 173.1 million at the end of June, at a minimum Logitech's dividend payment over the next two years will total $258 million. That compares to the $598 million in cash that was sitting on Logitech's balance sheet exiting the June quarter, which was also debt free. And the company's has been a consistent generator of positive cash flow. So how do all of these stack up? If I had to rank them, my preference even though its current dividend yield is below that of the S&P 500, I would start with Microsoft, then Logitech and finally Lam Research. With Microsoft, we have a proven generator of profits, cash flow and dividend increases. Moreover, we have a growing subscription-focused business that should continue to drive those characteristics. Logitech has ample dividend firepower, but it's still relatively new to the dividend growing game. And as I mentioned above with Lam, the cyclical nature of its end market is something to watch. If the company can make it through the next semiconductor capital equipment downcycle and continue to grow its dividend annually, the shares will see the benefit during the following demand upcycle.

Taking Stock of 5 Important Dividend Increases

Microsoft, Lam Research and several other companies have announced hikes in dividends, so let's break them down.

Columnist Conversation

A New, Very Scary Movie

Advice From the Future...

A Blast From the Past Regarding Bitcoin

COLUMNIST TWEETS

Please Join or Log In to manage and receive alerts.