Apparently, we are seeing several companies try to instil confidence with massive dividend hikes – but should we really be confident? In the case of some, I say “yes,” thus let’s take a look to determine which of these dividend hikes are presenting an investment opportunity.
| Company | Ticker | Quarterly Dividend Hike | 5-Year Hike | Forward Yield |
|---|---|---|---|---|
| Target Corporation (NYSE:TGT) | 19% | 170% | 2.47% | |
| Caterpillar Inc. (NYSE:CAT) | 15% | 43% | 2.88% | |
| Allied World Assurance Co Holdings, AG. (NYSE:AWH) | 33% | 178% | 2.19% | |
| Helmerich & Payne, Inc. (NYSE:HP) | 233% | 1,000% | 3.15% |
Large Retailer Makes Statement
Target Corporation (NYSE:TGT) is the largest competitor to Wal-Mart Stores, Inc. (NYSE:WMT). The two companies have similar growth, are secular in nature, and pretty much offer the same products.
Target Corporation (NYSE:TGT) trades at 12.34 times next year’s earnings with a price/sales of 0.61. Wal-Mart Stores, Inc. (NYSE:WMT) trades at 12.86 times next year’s earnings with a price/sales of 0.52. Therefore, the two are similarly valued, including both companies having a near identical forward yield.
With Target Corporation (NYSE:TGT) and Wal-Mart Stores, Inc. (NYSE:WMT) operating the same business strategy and being valued identical, an investment decision between the two is based on personal preference. In my opinion, there is nothing wrong with an investment in Target Corporation (NYSE:TGT), but nothing glamorous either. If you are looking for safe exposure in the retail space, then Target Corporation (NYSE:TGT) makes sense.
Large-Cap Industrial Stock With Heavy Exposure
Caterpillar Inc. (NYSE:CAT) couldn’t be further from being a secular stock, but is rather a company that needs a strong global economy in order to perform well. Since January 2012, the stock has lost about 10% of its value, and after struggles in mining and a slowdown across all of its segments, it appears as though the company is trying to instill confidence with its recent dividend boost.
Caterpillar Inc. (NYSE:CAT) trades at just 11.3 times earnings and 0.90 times sales, about 50% of the S&P 500, but I see significant reasons for its valuation. The company has already said that it expects traditional mining machines to be down about 50% compared to 2012, and its all-important China and Brazil markets are also seeing substantial slowdowns. Thus, in the case of Caterpillar Inc. (NYSE:CAT), a 15% dividend hike does not look to be enough to overshadow these fundamental problems.
A Specialty Insurance Play
Much like Target, there isn’t too much exciting about Allied World Assurance Co Holdings, AG. (NYSE:AWH). The company has very little analyst coverage and is not a company that you consider as a top investment. However, this is a company that has delivered five consecutive quarterly beats, and by large margins.
