Clarcor and ConAgra can Sustain Dividends

growthThere are companies out there that are continuing to increase dividends for their shareholders. While dividend increase is good, it is more critical to make sure we understand that companies can sustain their dividends. Following are two companies that recently announced their quarterly results and increased dividends.

Clarcor Inc. (CLC): It is a diversified marketer and manufacturer of mobile and industrial filtration products and consumer and industrial packaging products.

  • It is a dividend achiever has paid growing dividends for last 22 years. Most recent dividend increase of 8.3% was in October 2009.
  • The 3Q09 earning per share was $0.42 (vs. $0.50 in 3Q08).
  • The key highlight was improving operating profits and net earnings for fiscal year 2009.
  • The cash flow improved to $93million for first nine months (from $79million)
  • The 2009 earnings is expected to be $1.30 to $1.40.
  • Yearly dividend of $0.39/share appears to be well covered with earnings.
  • This payout ratio is at 30% and current dividend yield is 1.30%

ConAgra Foods Inc., (CAG): It is one of the largest US packaged food processors with $11.6 billion in revenues.

  • It has been paying dividends for more 25 years but not growing dividends. It has cut and/or suspended its dividends in these years. Most recent dividend increase of 5% was in September 2009.
  • The 1Q10 earning per share was $0.37 (vs. $0.23 in 1Q09).
  • The key aspects were significant increase in earnings and operating profits. It appears this increase is a combination of share buybacks and reduced operating costs.
  • The yearly dividend of $0.80/share appears to be covered with expected earnings of $1.70/share for year 2010.
  • The payout ratio is approx. 47% and current dividend yield is 3.8%.

At a high level and in the context of stocks screening, CLC and CAG demonstrate ability to cover and sustain their dividends.

What is your preference – Aristocrats or Achievers?

In general, for any dividend growth investor, the list of dividend aristocrats is favorite hunting ground. This list includes companies from S&P500 index that have been raising dividends consecutively for last 25 years. These are mature companies that have time and again shown they can perform in all economic cycles. Their management’s have consistently shown that they care about common shareholders dividends and believe in increasing at least to little more than inflation.

  • I view dividend aristocrats as the grand old daddy’s of the dividend companies. As they age, it becomes harder to sustain with their dividend growth momentum. The likelihood of their ability to grow dividend will continue to diminish.
  • We need to put past dividend growth in the context of US economy. The growth for majority of the existing dividend aristocrats came along with the growth in US economy. As the US economy flattered for whatever reason, the sustainability of the dividends became harder.

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