As spring waits in the wings, we approach that time of year when most companies hold their annual meetings, and many of them consider those stockholder favorites, splits and dividend increases. It is more common to split the shares and raise dividends at the time of the annual meeting because news from these much-observed yearly forums are generally well publicized.
In anticipating what will happen, the alert investor can benefit by studying past actions of boards of directors. He or she will know at what price companies tend to split their shares and how the boards act on the dividend.
It's been mentioned here before that the board of McCormick & Co. looks favorably upon a stock split (always 2-for-1) when the share price settles in the low- to mid-40s late in the year. Dividend increases for McCormick have been occurring every other quarter for the last four years.
As splits and dividend boosts tend to help share prices, an investor who has a feel for what will occur gains a step in the quest for profits.
Shares of Avemco Corp., a general aviation and marine insurer based in Frederick, are at their highest price ever, and earnings have rebounded. Based on the company's payout record and its good earnings, a dividend increase is likely soon. Dividend increases -- healthy ones -- have been steady in recent years. Any change from this pattern, such as only a small increase, might adversely affect the share price.
Federal Realty of Bethesda has been going through a period of declining earnings but its cash flow has permitted a continuation of dividend increases. The company earned only 35 cents a share in 1990 but paid out four times that much in dividends.
It continued a tradition by raising its dividend last year -- the share price bounded upward after the increase -- and another boost early this year might well elevate the share price again by at least a couple of points. It is remarkably positive for a company to raise its payout when earnings are weak.
Sears, Roebuck hasn't touched its dividend rate for four years, but Sears just finished a very strong earnings year -- up to $3.71 a share from $2.63 in 1990 -- and a dividend increase would project a strong showing of faith in the future for this large retailing and insurance company. Sears' annual meeting this year will attract more than usual interest because of potential restructuring -- an excellent platform for a dividend increase.
Baltimore Gas and Electric Co. will use its annual meeting period to discuss a proposed 3-for-2 stock split and a dividend increase.
Higher interest rates are being chased by record numbers of people these days, as declining bank rates have become unacceptable for many. Conservative though they may be, many persons have exchanged the security of the certificate of deposit for mutual fund shares and individual stocks.
Many do not realize, however, that even a modest upward rate change -- and rates have edged higher -- will probably lower the value of their fund or stock holdings.
For example, an increase of just half a percentage point in interest rates could adversely affect the principal value of a utility stock or a Ginnie Mae mutual fund by making it a little bit less competitive and alternative investments a little bit more attractive.