Dividend Stocks: Legg Mason, Sara Lee
BALTIMORE (Stockpickr) -- Dividends are back in the news this week, following yet another set of strong dividend hikes from dozens of companies. But the real reason dividends are grabbing attention today is coming from the Fed.
The Federal Reserve announced that it's currently preparing guidelines to determine whether banks are financially stable enough to return value to shareholders in the form of share repurchases or dividend payouts. The guidelines could come as soon as this month - and they have investors excited because the existence of guidelines points to potential increased dividends for investors in major banks.
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But banks are far from the only firms hiking their payouts to shareholders right now.
The high number of dividend increases in the past week is sending bullish signals to investors, who've already pushed major indexes to
. Over the last 36 years, dividend stocks outperformed the rest of the
S&P 500
by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, according to a study from NDR. And right now, companies that are willing to part with cash in arguably tough times are worth a second look.
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Without further ado, here's a look at
the stocks that announced dividend increases
recently.
One of last week's larger dividend increases came from Baltimore-based asset manager
Legg Mason
(LM) - Get Report
. The company announced a 50% jump in its payout that brings its total quarterly dividend to 6 cents per share.
Even though that increase only brings the company's yield to 0.7%, it's a big step for the firm, which has been battling asset outflows and shrinking earnings since 2008.
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Legg's been struggling with keeping investors since Chief Investment Officer and veteran stock picker
started underperforming the market in 2006 after decades of market-crushing returns. When investors exited the market en masse in 2008, Legg Mason was hit harder than most. And the company continues to find difficulty in returning to its former stature -- even if Miller and company have made a return to excellent performance of late.
As a result, Legg management has focused on returning value to shareholders. That came in the form of a billion-dollar stock buyback (around 20% of Legg's market cap) and most recently with the latest 50% dividend hike.
Those moves should help assuage the concerns of other institutional investors like the
(DODGX), which weighs in as one of Legg Mason's biggest shareholders. Some of the fund's other positions include stakes in
News Corp.
(NWSA) - Get Report
and
Comcast
(CMCSA) - Get Report
.
>>Who Else Owns Legg Mason?:
Business service provider
Cintas
(CTAS) - Get Report
was another company that announced a dividend hike, increasing its annual payout to shareholders to 49 cents per share -- a 2.1% increase.
Even if Cintas' payout hike wasn't a blockbuster, the message sent by management was clear: They'll continue to add value to customers in economically uncertain times.
>>Who Owns Cintas?:
Cintas' bread and butter is the uniform rental business. With more than 800,000 customers, the company is far and away the leader in the industry. But that saturation has come at the cost of growth. To increase its top-line numbers, Cintas has expanded its scope to other services that it can market to its impressive Rolodex of firms.
Those new initiatives are paying of for Cintas. The company posted mid-single digit revenue growth in its fiscal first quarter and looks to deliver similarly sized improvements this quarter.
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That's the hope, at least, of owners like the
(RYVPX), which owns shares of
Gamestop
(GME) - Get Report
and
O'Reilly Automotive
(ORLY) - Get Report
in addition to a 1.4 million share stake in Cintas.
2010 has been a strong year for food manufacturer
Sara Lee
( SLE) , with shares of the $10 billion food firm up more than 21% on the year thus far. And they could be headed higher as the company approaches next week's earnings call.
For now, shareholders are enjoying the results of the company's recent 4.5% dividend increase, which brings Sara Lee's total payout to 11.5 cents per share, a 3.1% yield at current levels.
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Sara Lee's performance has been impressive this year, especially considering the margin squeeze that other food processing firms have been suffering as a result of rising commodity costs. Part of the reason for that run-up is Sara Lee's impressive product portfolio. With a hand in everything from coffee to baked goods to lunch meats, Sara Lee's premium product marketing helps build a narrow moat against the sales encroachment of private label brands. Of course, Sara Lee has a hand in private-label brands too, a business that expands the company's reach without cannibalizing too many sales dollars.
Good financial health means that the company's ability to maintain its dividend isn't' in question -- even if a continuing commodity rally poses problems for the firm. One of the company's biggest proponents is noted value investor
, whose firm also owns shares of
Pfizer
(PFE) - Get Report
and
Texas Instruments
(TXN) - Get Report
.
>>Also:
For the rest of this week's dividend stocks, check out the
on Stockpickr.
And if you haven't already done so,
today to create your own dividend portfolio.
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author had no positions in stocks mentioned. Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including
Forbes
and
Investopedia
, and has been featured in
Investor's Business Daily
, in
Consumer's Digest
and on
MSNBC.com.
Jonas Elmerraji is the editor and portfolio manager of the
Rhino Stock Report
, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including
Forbes
and
Investopedia
, and has been featured in
Investor's Business Daily
, in
Consumer's Digest
and on
MSNBC.com
.
