The warning signs of a dividend cut should always be in the back of your mind. That said, Texas Instruments Incorporated (NASDAQ:TXN) recently announced a massive dividend increase, a dedication to its policy of returning value to shareholders, and the near completion of its corporate transformation. This is the type of dividend paying company an investor could really love—there are others.
Dividends Aren’t Guaranteed
Investors have had a fascination with dividend paying companies in recent years. However, there is a temptation to reach too far in the search for income. While a high yield can be enticing, it is important to examine the underlying business and its commitment to that dividend.
For example, Nokia Corporation (ADR) (NYSE:NOK) eliminated its dividend “to ensure strategic flexibility.” The company is attempting a comeback in the cell phone handset market that is far from certain. While it has been making strides, achieving solid reviews for its Lumia phone, it has a long way to go. With a volatile dividend prior to the elimination, investors would have been purposely missing the obvious to jump aboard for the yield. However, many likely did.
Washington Real Estate Investment Trust (NYSE:WRE) also recently cut its dividend. While this company, which focuses on owning investment properties in and around Washington D.C. had once proudly proclaimed its impressive history of annual dividend increases, it recently chose to keep the payout static. That’s a bad sign for companies with long histories of dividend increases. The cut was announced along with a management change and a notable business restructuring. While it will likely be a stronger company for the changes, it has clearly disappointed shareholders.
Keep an Eye on Pitney Bowes Inc. (NYSE:PBI)
A high yielder to keep an eye on now is Pitney Bowes. This company has been hard hit by the Internet because it is so tied to regular mail services. While management is working hard to catch up to the times by bringing out more Internet-based services and trying to create services that transcend both physical delivery and online delivery, there is no question that the company has problems. The big concern is that after years of annual dividend increases, the company recently chose not to increase its dividend at the normal time.
This was supposed to give the company’s new CEO a chance to review the business, but it is a bad sign for the dividend. While a cut doesn’t always come next, it’s easier for the new CEO to make such a move early on in his or her tenure than to admit it is needed later. Avon was in a similar situation before its disbursement was trimmed.
Some Companies to Love
Texas Instruments Incorporated (NASDAQ:TXN), however, is almost the exact opposite of the above companies. In a recent conference call, the company basically said that it is nearly done with a corporate makeover that should position it for solid growth over the longer-term. Moreover, it increased the dividend some 33% and expressed its commitment to returning value to shareholders through both its dividend and share buybacks. To hold a meeting specifically highlighting these things is a strong statement and one that investors should note.