Following a banner year for dividend stocks in 2012, 2013 is delivering more of the same as an increasing number of companies are either initiating cash dividends or boosting existing payouts.
From Feb. 1 to Feb. 8, at least 15 companies increased their cash dividends. That list included familiar names such as Dow component 3M Co. (NYSE: MMM), Allstate Corp. (NYSE: ALL) and Archer Daniels Midland Co. (NYSE: ADM), a new addition to Warren Buffett's Berkshire Hathaway Inc. (NYSE: BRK.A, BRK.B) equity portfolio.
It was more of the same when 14 companies raised their payouts in the week ending Feb. 15. That list includes Comcast Corp. (Nasdaq: CMCSA), PepsiCo Inc. (NYSE: PEP) and United Parcel Service Inc. (NYSE: UPS).
With all these familiar blue chips delivering ever-increasing dividends, it is not surprising that some stocks of the same caliber go overlooked by investors. Here are a couple of those unheralded names investors on the hunt for dividend stocks should become more familiar with.
A Dividend-Paying Energy Play
Occidental Petroleum Corp. (NYSE: OXY), the fourth-largest U.S. oil company by market value, is headed for big improvements this year.
First, the company plans to do something about the ongoing criticism of its lavish executive compensation, which is well above industry standards.
The company also takes heat for grappling with cost-containment issues, even though it doesn't explore offshore. Offshore oil exploration is far costlier than its onshore equivalent, so in theory, Occidental should be a cost-efficiency leader. In reality, that has not been the case.
But recent cost-savings efforts are expected to bear fruit for shareholders this year.
Additionally, Occidental's balance sheet is strong with $3.76 billion in cash and $7.62 billion in long-term debt that is high-grade and financed at low rates. That is one reason why the company was able to boost its dividend 18.5% earlier this month to an annual figure of $2.56 a share from $2.16.
Two other factors to consider: Some shrewd investors such as Ray Dalio and T. Boone Pickens are fans of Occidental. Pickens just picked up more shares in Q4.
Second, California's Monterey Shale may hold 15.4 billion barrels of reserves, or more than quadruple what is recoverable in the Bakken Shale. Occidental is the dominant Monterey producer.
Of course, it cannot be forgotten that Occidental's dividend has more than doubled since 2008. The yield is now 2.5%. Analysts' one-year price target is $99.85, a 20% gain from Thursday's $83.43 closing price.
A Dividend Growth Stock Buffett Might Have His Eye On
Earlier this month, Warren Buffett's Berkshire Hathaway and a Brazilian partner announced a $28 billion offer to acquire ketchup king H.J. Heinz Co. (NYSE: HNZ). That certainly qualifies as a "mega deal," but Buffett's appetite for big acquisitions remains strong and he has publicly said as much.
Predictably, the deal for Heinz has the market pontificating on where Buffett's next large-scale acquisition may lie. He may not drift far from the food sector. In fact, he may not drift from that sector at all. General Mills Inc. (NYSE: GIS), the second-largest U.S. food maker, has been one of the food names talked about as legitimate buy for Buffett following the Heinz deal.
But what about The J.M. Smucker Co. (NYSE: SJM)? Like General Mills and several other food giants, Smucker surged about 3.3% after news of the Berkshire-Heinz deal broke.
The company owns recognizable brands such as its namesake jams, jellies and Jif peanut butter. It operates in an easy-to-understand, predictable business. Smucker's long-term debt/equity ratio of 0.38 is tolerable and a beta of just 0.66 is a source of allure for conservative investors, Buffett included.
A strong cash position (over $4 per share in cash) has also provided a positive impact on Smucker's dividend, which is now 52 cents per share per quarter. The current yield of 2.3% may not sound like much, particularly when measured against other staples stocks, but that dividend is likely to grow as Smucker's payout has nearly doubled since 2006.
For more on Buffett's $28 billion deal with Heinz, check out this analysis with Money Morning Capital Wave Strategist Shah Gilani.
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