These two stocks are upping their dividends at an impressive rate, but is that enough of a reason to buy?
Dividends are becoming increasingly important in this seemingly perpetual low interest rate environment. The S&P 500 average dividend yield has been under 2% for what seems like years.
But another thing that’s making dividends more and more enticing is the fact that the market is trading at all-time highs. Many investors are feeling a little uneasy with the stock market, leading to a modest influx into “safer” dividend stocks.
Not all dividend stocks are created equal, but when investors see a company upping its dividend by 20%, it’s hard not to take notice.
Without further ado, here are two stocks upping their dividends by more than 20% this week.
No. 1 Dividend Increase This Week: Las Vegas Sands (NYSE: LVS)
Las Vegas Sands is upping its quarterly dividend by 30% this week to 65 cents a share. That puts its yield up to 5%.
Part of the reason Las Vegas Sands’ dividend is so impressive is that the stock has fallen by 33% over the last year. This comes as the gambling scene in Macau has weakened materially.
It’s been a perfect storm of headwinds in Macau, the gaming capital of the world. Setbacks include visa restrictions for travelers looking to go to Macau, slowing credit growth in China and a smoking ban in casinos – all of which have come about over the last year or so.
The reason that it’s hitting Las Vegas Sands so hard is that its Sands China generates close to 70% of overall revenue. And although it has a dominant position in Macau, it’s still feeling the weakness the entire region is experiencing.
There is a bright spot, however. Las Vegas Sands is a pioneer in the Singapore casino market, where it owns 50% of the market share. It owns one of only two casinos in Singapore and there won’t be any more potential competitors there until at least 2018.
Beyond that, there are major opportunities for Las Vegas Sands should other Asian countries, like South Korea and Japan, legalize casino gambling.
Las Vegas Sands has upped its dividend for two years, but it is paying out just over 80% of its earnings via dividends. It will trade ex-dividend on March 19.
No. 2 Dividend Increase This Week: Best Buy (NYSE: BBY)
Best Buy is upping its quarterly dividend by over 20% this week to 23 cents a share. Its dividend yield is a solid 2.3%.
It’s been paying a dividend for over a decade and has a three-year streak of consecutive dividend increases. And it is only paying out about 35% of its earnings via dividends.
But the other interesting thing about Best Buy’s dividend increase is that it will also be paying a 51-cent special dividend along with its regular dividend. That means its pro forma dividend yield is over 4.4%.
Best Buy has a strong balance sheet with $3.9 billion in cash, versus just $1.6 billion in debt. It’s recovered nicely from its low-teens stock price of late 2012. However, is there more to the big-box retail turnaround?
Best Buy has already stripped out $1 billion in annual costs, thanks in large part to store redesigns. It’s also done an overhaul of its online site, including implementing ship-from-store capabilities. There are already various Samsung, Microsoft and Sony stores within many Best Buy locations.
So the logical question is: What’s left to be done? Not much, it appears.
Shares trade ex-dividend on March 20.
It just so happens that both Las Vegas Sands and Best Buy are generating high levels of returns on invested capital (20% or more). Both are also fairly cheap from a historical perspective.
Las Vegas Sands trades at a price-to-earnings ratio of 15.5 based on next year’s earnings estimates. Best Buy trades at a P/E ratio of 14.5.
But neither stock is for the faint of heart. Best Buy has already had a heck of a run and still faces a lot of competition from online retailers. And Las Vegas Sands is still trying to navigate a gambling market that’s been in decline not only in the United States, but also in Macau, the world’s largest gambling market.
So while it’s encouraging to see the robust dividend increases this week, it’s worth digging into these names a bit more before making a commitment.
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