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TheStreet Open House

5 Stocks Ready for Big Dividend Boosts

Stock quotes in this article: NAFC, SMP, ANDE, F, WU, CA

Ford Motor

Auto maker Ford (F) is now on much stronger financial footing than anyone would have guessed just a few years ago. Debt has been reduced, cash reserves have been built up, and profit margins are back at pre-crisis levels.

To show off its new financial muscle, Ford has even begun paying a 5-cent quarterly dividend again, good for an annual payout of 20 cents and a 1.6% yield.

That's not good enough. Ford is earning $1.50 to $2 a share these days and should be earning $3 a share or more when the global economy is truly healthy. How about targeting a 30% payout ratio? That implies a current dividend of around $0.50 (good for a 4% yield). And by mid-decade, that would translate into a $0.90 annual payout, which works out to be a 7.3% yield.

If shares continue to languish in the low teens, management may just get peeved enough to radically boost the payout from its current paltry levels.

I also featured Ford in " 5 Cheap Stocks for an Auto Industry Renaissance."

Western Union

Financial services company Western Union (WU) has started to run out of growth opportunities. Sales steadily rose throughout the last decade, reaching $5.3 billion by 2008. Yet four years later, they're likely to be less than 10% higher to a projected $5.8 billion in 2012.

In lieu of robust growth opportunities, management has instead begun to return more cash to shareholders. Western Union used to pay out a tiny nickel-a-share dividend, but it boosted it to 25 cents a share in 2010 and 31 cents in 2011, and it's been hiked again this year to 40 cents a share.

In the words of Oliver Twist: "Please sir, some more." Heck, any company that routinely earns $1.50 to $2 a share can afford to part with 60 cents or even 70 cents a share. Management would find that as the yield rises towards the 4% mark, a whole new class of investors would open up for the company.

To see these stocks in action, visit the Dividend Boosters portfolio.


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At the time of publication, author had no positions in stocks mentioned.

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