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A Scotts Miracle-Gro display at a garden centre

MEL EVANS/The Associated Press

Scotts Miracle-Gro Co. sells products that promote healthy lawns and gardens, but lately it's shown a knack for growing something else: its dividend.

And it has plenty of company.

Even as the global economy sputters, cash-rich companies are rewarding shareholders with juicy dividend increases, providing a silver lining to the clouds that have gathered over stock markets.

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Scotts is just one example.

Fresh from posting record third-quarter results, the Marysville, Ohio-based company this month doubled its quarterly dividend to 25 cents (U.S.) a share and announced a $500-million stock buyback, underlining management's confidence.

Finding fat dividends

"Our business and cash flow are strong, our balance sheet is healthy and our low debt … level gives us tremendous flexibility in managing our business," said Jim Hagedorn, chairman and chief executive officer.

Other U.S. companies that have raised dividends in the past month or so include Monsanto Co., General Electric Co. and Starbucks Corp.

In Canada, the list includes BCE Inc., Magna International Inc., Saputo Inc., CAE Inc., Stella-Jones Inc., Ritchie Bros. Auctioneers Inc., Toromont Industries Ltd. and several gold producers.

"Absolutely there's a pickup" in dividend increases, said U.S. money manager and newsletter publisher Charles Carlson, author of The Little Book of Big Dividends.

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"It's still not what was in '06 or '07 but there's definitely been a nice rebound from where we've been in the last two years."

Why are dividends rising when the economy is supposedly heading south? A few reasons.

For one thing, companies slashed costs during the recession, so profits are often beating expectations. As well, many firms stockpiled cash to ride out the downturn, and they're now facing investor pressure to either spend the money or return it to shareholders via dividends or buybacks.

A third factor is the aging population, Mr. Carlson said. The growing need for income among retirees is causing some companies to put more emphasis on dividends, a trend that will likely continue as more boomers retire.

In the second quarter, 335 publicly traded U.S. companies raised their dividends, up from 233 in the second quarter of 2009. At the same time, the number of dividend cuts fell sharply, to 34 from 250.

"The speed of the turnaround is amazing," said Howard Silverblatt, senior index analyst at Standard & Poor's. "Companies are starting to regain confidence, and they are showing it with higher cash payments."

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A dividend increase says a lot about a company's outlook. Even in the face of a sluggish economy, companies are signalling that they are still performing well.

"The board is saying first of all that it has confidence in its business, that they're able to generate cash and they're comfortable with the outlook," said Terry Wong, portfolio manager with Cardinal Capital Management in Winnipeg.

Investors are still waiting for the Canadian banks to resume dividend hikes, but it won't be long, Mr. Wong predicted. Once new global rules governing capital requirements are in place, the banks will be in a position to raise dividends.

"It could be as early as the fourth quarter of this year but more likely the first half of next year," he said.





Read more about dividend stocks:

  • Dividends rise and shine amid recession
  • How to find funds that deliver steady income
  • Payout ratio: A key tool for dividend sleuthing
  • That sweet spot: Reliable returns, just a little risk
  • Five fixes for yield-starved investors








Hot summer for dividend hikes

Company

Symbol

Date of dividend hike

Old dividend (¢)

New dividend (¢)

% increase

Yield (%)

Share price ($)

Scotts Miracle-Gro Company*

SMG-N

Aug. 10

12.5

25

100.0

2.1

49.79

Magna International*

MG.A-T

Aug. 6

18

30

66.7

1.5

84.93

CAE Inc.

CAE-T

Aug. 11

3

4

33.3

1.6

10.02

Starbucks*

SBUX-Q

July 21

10

13

30.0

2.2

24.50

General Electric*

GE-N

July 23

10

12

20.0

3.1

15.70

Stella-Jones Inc.

SJ-T

Aug.12

18

20

11.1

1.5

27.00

Saputo Inc.

SAP-T

Aug. 3

14.5

16

10.3

1.9

33.49

Toromont Industries

TIH-T

Aug. 12

15

16

6.7

2.4

27.80

Monsanto Company*

MON-N

Aug. 4

26.5

28

5.7

2.0

58.97

BCE Inc.

BCE-T

Aug. 5

43.5

45.75

5.2

5.7

32.56

Ritchie Bros Auctioneers Inc.*

RBA-T

Aug. 6

10

10.5

5.0

2.3

18.78

* Share and dividend figures in $ (U.S.)

Source: Bloomberg

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