Welcome to our new post about dividends and dividend-paying companies. In this post, focus will be on companies which have now started paying dividends.
So, to begin with, why do companies pay dividends? Why not these companies retain their earnings and reinvest in their businesses for more growth opportunities.
Well, this is because global investors have always shown their favor to dividend stocks. As a result of this, the US companies try to focus on establishment, growth, and maintenance of dividend and payout policies. Global companies are even averse to dividend reduction because of negative impact it might have on general public.
As a result of this, whenever the company decides to increase dividend, it means that the company’s management and board expects that increased payout is sustainable and is well-established. In the year 2023, S&P 500 touched the new annual record by shelling out $70.30 per share in dividends. This exhibits a rise from $66.92 which was paid in 2022.
As per the report by S&P Dow Jones Indices, total payout to shareholders was seen at ~$588.2 billion, crushing the prior year’s figure of ~$564.6 billion. This report also mentions a quarterly growth in total dividends, with an increase from ~$16.3 billion in 4Q22 to ~$17.5 billion.
S&P 500 Dividend Aristocrats index, an index focused on tracking companies which have consistently increased dividend payments for previous 25 years, saw 5.7% growth in prior year. This performance was significantly lower in comparison to 26% rise in S&P 500 total return index during similar period.
If that’s the case, why should one invest in the companies which have now started paying dividends?
Well, that’s because top analysts at Morgan Stanley are quite optimistic regarding potential resurgence of dividend stocks in present year. Apart from healthy outlook for dividend stocks, historical performance of the companies continuously increasing dividends demonstrated resilience and strength over past few years.
With this in mind, we will now have a look at companies which have now started paying dividends.
1. MarketWise, Inc.
The company is a multi-brand subscription services platform which provides premium financial research, software, education, and tools for investors.
It has recently announced a regular dividend to shareholders of Class A common stock of $0.01 per share. With this, a comparable distribution of $0.01 per unit was also approved. Dividend and distribution totalled ~$2.9 million in aggregate. Given its strong and healthy balance sheet, and post the review of capital allocation, it has announced special dividend to shareholders of Class A common stock of $0.15 per share.
For 3Q23, the company generated net income of $12.0 million on GAAP net revenue of $106.2 million. For 9 months ended September 30, 2023, it saw net income of $52.4 million on GAAP net revenue of $336.0 million. Its paid subscriber file size, as at September 30, 2023, was 774,000 and its paid subscriber file last September 30, 2022 was 894,000.
Moving ahead, the company plans to pay recurring dividends and special dividends as and when necessary to keep size of its balance sheet small, other than cash amounts it holds as float. The company expects that opportunistic share repurchases should add value for shareholders, given that buybacks are made at attractive prices.
2. Veralto Corp
The company offers water supply services. It provides water treatment solutions which sources water to consumers and back into water cycle.
It has announced that its board of directors approved quarterly cash dividend of $0.09 per share of the common stock, which was payable on January 31, 2024 to holders of record as at December 29, 2023. For the 3Q ended September 29, 2023, its sales went up by 3% year-over-year to $1,255 million, with non-GAAP core sales growing 1%. Operating profit margin came in at 21.8% and non-GAAP adjusted operating profit margin, which includes estimated incremental stand-alone costs, was 22.4%.
Operating cash flow of the company touched $243 million and non-GAAP FCF was $232 million. During the 3Q, the company delivered core sales growth and executed well on pricing, productivity and continuous improvement actions. Apart from this, it saw strong FCF and strengthened its financial position.
Durability of businesses, essential characteristics of technology solutions and strong secular growth drivers of the company’s end markets are expected to help the company achieve steady growth, consistent with its historical track record.
For 4Q23, it anticipates adjusted operating profit margin of between 23.5% – 24.5% and adjusted diluted EPS in the range of $0.79 – $0.84.
3. Borr Drilling Limited
The company is a drilling contractor, owning and operating jack-up rigs of modern and high-specification designs. It provides drilling services to oil and gas exploration and production industry.
Its Board of Directors approved cash distribution of paid-in capital of US$0.05 per share for 3Q23.
In 3Q23, total operating revenues of the company came in at $191.5 million, exhibiting a rise of $4.0 million or 2% in comparison to 2Q23. Net income was $0.3 million, a decrease of $0.5 million compared to 2Q23. Adjusted EBITDA of the company was $88.2 million, an increase of $4.2 million or 5% against 2Q23.
Total contract revenue backlog as at September 30, 2023 of the company came in at $1.86 billion. Strong operational performance of the company was seen in 3Q, with technical utilization for quarter above 99%. Backlog quality continues to improve and, YTD, it has secured 12 new commitments, adding $728 million to its revenue backlog at implied average day-rate of $161,500.
The company continues to experience positive developments in utilization in global jackup market. Mainly for modern rigs, its marketed utilization came in at ~94%.
Conclusion
While above are some of the companies which have now started paying dividends, there are several other companies which fall under this category and which should perform well moving forward.
Morgan Stanley’s data exhibited that companies in Russell 1000 index which decided to increase dividends saw average outperformance of ~3.1% in their stock prices in just six months after announcement of such an increase.
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