A big asset for Deere is its captive finance arm. While that scared off some investors in 2008, the quality of Deere’s debt has held up better than most analysts expected – and with access to extremely cheap capital right now, Deere Financial should help stoke the growth fires in a big way going forward. With ample liquidity on hand, Deere looks well positioned for a dividend hike in the next quarter. Investors should watch out for first quarter earnings on Feb. 13.
Aptly named Waste Management Inc. is in the business of turning trash into cash. And it does it in more ways than just one. Yes, the firm’s fleet of trucks collects trash around the country, bringing it to one of 271 active landfills flying the Waste Management flag, but WM also owns considerable waste-to-energy generation capacity thanks to 22 Wheelabrator plants.
Waste Management’s leading market position in the garbage business is attractive. Typically, waste collection is thought of as a recession resistant industry (even if customers produce less waste during downturns, they’re unlikely to stop getting trash services). And WM has a stellar track record of generating cash, leveraging its size to capture national accounts that smaller players in this fragmented space can’t swing. Management has an eye on costs in 2013, as WM looks to expand margins and avoid getting squeezed on its bottom line.
Even though the waste business is capital intense, WM operates with a reasonable amount of leverage when its $1-billion cash and investment holdings are factored in. On the dividend spectrum, waste companies are utility-like, and WM’s 4.07-per-cent yield is evidence of that right now. The firm has the wherewithal to hike its 35.5-cent shareholder payout this quarter, and I think it’s likely to.
Polaris Industries had a stellar year in 2012 – in the past 12 months, the ATV, motorcycle, and snowmobile maker has rallied around 50 per cent. As one of the best-known names in the motorsports and small utility vehicle segments, PII has little trouble courting customers who’ve decided they’re in the market for a new toy with treads or nubby tires.
Consumer recreation spending looks well positioned to afford Polaris some attractive organic growth for the next few years. But the firm isn’t waiting for sales increases in the market – it’s been buying complementary brands for its stable, adding names like Indian Motorcycle and more utilitarian offerings such as small electric vehicles used by institutional customers. That combination of market tailwinds and bargain acquisitions should fuel material top line growth in 2013.
Even though the recreational vehicle industry got stomped after the Great Recession, Polaris sports a solid balance sheet. The firm carries more than $470-million in cash and investments, easily offsetting a $107-million debt load. Dividends have historically been a priority for the firm, and a hike to its 37-cent payout looks probable given its balance sheet strength right now. Currently, Polaris yields 1.69 per cent – I think we’ll see that number climb in the next quarter, possibly after Jan. 29 earnings come out.
Department store chain Nordstrom Inc. is a bellwether for consumer discretionary spending. Its positioning on the higher end of the market means that it thrives when the economy is heating up, and it falters when times get tough. But Nordstrom’s earnings trajectory since 2010 indicates that conditions are improving quickly for the firm.
Nordstrom runs 115 full-price anchor stores, and almost the same number of discounted Nordstrom Rack locations. With a customer base that’s less price sensitive, the firm is able to wring much better margins out of each sale, and as a result it tends to be better situated financially than larger peers. While the U.S. department store market is pretty saturated, JWN’s positioning as the service leader gives it a niche that spares it from a direct comparison to those bigger rivals. For that reason, this retailer still has a lot of room to expand its reach around the country with new store openings. Investors will want to keep an eye on how cautiously management opts to do that.
In the last few years, Nordstrom’s balance sheet has been expanding, but its cash position has been ballooning much faster than its debt load. Right now, cash stands at $1.2-billion, with debt at $3.1-billion. That’s a reasonable amount of leverage for a department store retailer, particularly one that issues its own store credit cards, and the huge amount of cash it generates provides sufficient coverage.
Right now, Nordstrom pays out a 27-cent quarterly dividend that adds up to a 1.97-per-cent yield. With profits on an upward climb, investors should expect those dividends to follow in kind.