Despite Woes, New Buybacks & Dividend Hikes Stay Strong (AOS, CLF, CMI, KLAC, NWS)

The market is soft, the economy hit a soft patch, and now woes are building about Italy beyond Greece, while China and India keep applying the brakes on growth.  This is taking the wind out of many top stocks, but some companies are trying to show the all-clear signal that things are not as bad in all aspects of business.  We are getting more and more dividend hikes and even share buyback announcements from companies.  The trends continue…

Today’s key dividend hikes and share buybacks are in shares of The A. O. Smith Corporation (NYSE: AOS), Cliffs Natural Resources Inc. (NYSE: CLF), Cummins Inc. (NYSE: CMI), KLA-Tencor Corporation (NASDAQ: KLAC), and News Corporation (NASDAQ: NWS).  We have added in price data and compared yields and the relative size to share prices if applicable.

The A. O. Smith Corporation (NYSE: AOS) approved a 14% dividend hike in its quarterly cash dividend to $0.16 per quarter per share and payable on August 15 to shareholders of record July 29.  The new yield is roughly 1.5% with shares currently down 1 cent at $41.87.  Here is what is amazing, housing may stink but it appears that the replacement cycle is coming soon… A.O. Smith manufactures and sells water heating equipment to the residential and commercial markets.

Cliffs Natural Resources Inc. (NYSE: CLF) just announced last night that it will increase the quarterly cash dividend by 100% to $0.28 per share per quarter, payable on September 1 to shareholders of record as of the close on August 15.  Doubling a dividend is usually a solid message.  Still, this is a lower dividend yield of just under 1.2% now that shares are up marginally at $95.00 this morning.  The iron ore and metallurgical coal player’s 52-week trading range is $45.18 to $102.48.

Cummins Inc. (NYSE: CMI) is trying to signal that the engine business is fine for years ahead because this is one large dividend hike.  Cummins hiked its quarterly dividend by about 50% to $0.40 per quarter per share from a rate of $0.2625 per quarter per share.  The new rate is not a major yield but it is larger than most tied to auto or trucks as its new yield is above 1.5%.  Shares are up 2% at $106.00 this morning and the 52-week range is $58.91 to $121.49.

KLA-Tencor Corporation (NASDAQ: KLAC) has authorized an increase in the quarterly dividend from $0.25 to $0.35 per share, taking effect in with the quarterly dividend to be declared in August 2011. This is nearly a 40% hike and represents its third dividend increase since initiating its dividend in April 2005.  With shares down 2% around $41.30, KLA-Tencor’s new dividend will clock in at close to 3.4%.  That is impressive for a technology stock.

News Corporation (NASDAQ: NWS) has decided that the recent share weakness around its ‘News of the World’ and around its BSkyB buyout reached the “enough is enough” point.  Today Rupert Murdoch and friends announced that a stock repurchase program totaling $5 billion.  The new plan increases what was approximately $1.8 billion remaining under the prior buyback plan.  What is different about this buyback from the prior buyback is that the company said it intends to buy back “$5 billion of Class A common stock and Class B common stock from time to time over the next 12 months.”  We are talking about a $43 billion market cap and a company that has billions in cash on hand.  Shares are up 2% at $16.44 and the 52-week range is $13.46 to $19.08. This was at $18.50 just on July 5.

Higher dividends and higher buybacks might not make shares rise if the market remains soft and nervous, but the dividend hiking trend remains the top reward for returning capital to shareholders.

JON C. OGG