A simple method to identify companies capable of raising dividends

Another screening criterion is a total debt-to-equity ratio no higher than 50%. The rationale is that, as interest rates rise, highly leveraged companies may find it increasingly difficult—not to mention impossible—to maintain, let alone raise, their dividends. The screening also considers the dividend payout ratio—the percentage of earnings paid out as dividends. Barron’s sought companies with a payout ratio below 55%, a fairly conservative figure that provides sufficient flexibility for dividend growth. The table below lists the seven companies selected. All are S&P 500 constituents whose free cash flow yield exceeds their dividend yield—indicating that their dividends are secure and have room to grow. Data as of July 29. PFG (Principal Financial Group), an asset management firm that helps clients with retirement investments, shows the largest spread between its free cash flow yield and dividend yield: 16.6% versus 3.8%, respectively, as of the July 29 close. Including dividends, the stock has returned –6% year-to-date. By comparison, the S&P 500 is down 13%. Regions Financial (RF), a regional bank headquartered in Birmingham, Alabama, boasts a free cash flow yield near 14%, substantially above its recent dividend yield of 3.8%. Last month, Regions Financial announced plans to raise its quarterly dividend from $0.17 to $0.20 per share—a $0.03 increase, or nearly 18%. Two major global energy companies—ExxonMobil (XOM) and Chevron (CVX)—also made the list, both benefiting from rising oil and natural gas prices. Although questions arose early in the pandemic about whether ExxonMobil could sustain its dividend, the company ultimately raised its quarterly dividend by $0.01 last fall—to $0.88 per share—allowing it to remain in the S&P 500 Dividend Aristocrats Index, whose members have increased dividends for at least 25 consecutive years. On July 29, ExxonMobil reported $16.9 billion in second-quarter free cash flow—up from roughly $7 billion a year earlier—and paid $3.7 billion in dividends during the most recent quarter. Chevron reported $10.6 billion in second-quarter free cash flow—up from $5.2 billion a year earlier—with a quarterly dividend of $1.42 per share. Pharmaceutical giant Pfizer (PFE) also appears on the list. In the first half of this year, it paid $4.5 billion in dividends, with a quarterly dividend of $0.40 per share. In 2021, Pfizer’s free cash flow totaled $29.9 billion—up from $10.5 billion in 2019—and stood at approximately $6 billion in the first quarter of this year. Pfizer defines free cash flow under U.S. GAAP as net operating cash flow minus capital expenditures for property, plant, and equipment. Cisco Systems (CSCO) is the sole technology company on the list, with a free cash flow yield of 7.1%—more than double its dividend yield of 3.4%.

Stellantis’ revenue rebounds, but cash continues to drain

Financial results released on October 28 show that in the third quarter, the company posted net revenue of €37.611 billion, up 1% year-on-year, while its net loss attributable to shareholders narrowed to €470 million. However, industrial free cash flow remained negative at €4.009 billion for the quarter, bringing the cumulative outflow for the first nine months to €4.93 billion. Having boosted revenue and reduced losses, this automotive group—owner of brands including Jeep, Peugeot, and Citroën—must now accelerate cash recovery. The primary source of third-quarter cash pressure was working capital requirements. CFO João Laranjo disclosed that changes in working capital resulted in a €2.772 billion net cash outflow for the quarter. Scheduled summer production halts led to lower output and shipments compared with Q2, and shifts in inventory levels, receivables collection, and supplier settlements dragged on cash flow. The company expects increased shipments and reduced year-end dealer inventories in Q4 to generate positive cash inflows. U.S. dealer inventory has a clear reduction target: from approximately 368,000 units at the end of September to 320,000–350,000 units by year-end. Earlier production adjustments have already reduced local dealer inventory by 6% quarter-on-quarter—but inventory remains 23% higher than a year ago. Inventory reduction and price discipline must proceed simultaneously. Reducing shipments to the channel will weigh on short-term revenue; excessive inventory buildup, meanwhile, risks forcing dealers to expand discounts, thereby eroding per-vehicle profitability. Filosa stated that improved net pricing in North America contributed positively by €425 million in Q3, and the company will continue aligning production with market demand to balance volume and profitability.

Stepan Just Raised Its Dividend for the 59th Straight Year. Most Investors Have Never Heard of It

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Stepan Company raised its quarterly dividend to $0.405 per share for the 59th consecutive year, cementing its Dividend King status. As a key supplier of surfactants and polymers, the firm maintains profit growth despite raw material price swings.

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