Progress Software boosts dividend, shrugs off investor demands

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MARKING PROGRESS: Founded in 1981, Bedford-based Progress Software Corp. first issued a dividend last year. This month it said it is increasing the quarterly payout by 12 percent, to 14 cents per share.

One of the things I have consistently preached in this blog is local companies that have shown a willingness and consistency to pay — and increase — dividends. The annual percentage increase one gets from dividends often far exceeds what one can expect from a paycheck or any (other) investment. This has been demonstrated in recent examples involving TJX Cos. and Raytheon, and to a lesser extent, Enterprise Bank.

Now I present to you Progress Software, a provider of enterprise software based in Bedford’s Oak Park.

Progress is pretty new to the dividend game — it only started paying them last year, and the yield is a modest 1.3 percent. But on Sept. 12, the company announced that it was giving its shareholders a 12 percent raise, as the quarterly payout increases from 12.5 cents per share to 14 cents per share, starting in December.

Adding to the good news was that Progress reported “preliminary” third-quarter earnings that were better than expected. The official report for what the company calls its third quarter (June 1 through Aug. 30) comes Wednesday afternoon. And if you’re a stock geek, you don’t want to miss that one — and it has nothing to do with dividends and earnings.

Progress has been in a bit of a tiff with its second-largest shareholder, a hedge fund called Praesidium Investment Management. During the summer, New York-based Praesidium requested (OK, demanded) that Progress replace Jack Egan, chairman of the board of directors, and to acquire an unnamed private company favored by the hedge fund.        

This past week, Progress publicly responded negatively to those demands, saying Egan (son of Richard Egan, the “E” in EMC Corp.) had the support of directors and that the suggested acquisition “was not in the best interest” of shareholders.   

Both Progress and Praesidium have declined to name the targeted company, although Reuters reported that it is Aptean Inc., an Atlanta-based enterprise software company that Reuters reported was put on the market last year in an effort to fetch $1 billion.

Praesidium managing partner Kevin Oram said in response to Progress’ statement Tuesday that Progress “did not address the central concerns of our letter and presentation,” which also include adding five board members, including a Praesidium representative. Praesidium later told the Boston Business Journal that it was “not going away,” although it has modestly reduced its stake in Progress in recent months.

(Disclosure: Oddly enough, Mr. Oram and I are high school classmates, although we have not spoken in about nine years).

As a shareholder, disagreements such as these shouldn’t necessarily be viewed as a bad thing. Praesidium, if nothing else, is pushing Progress to perform to its highest level. The company’s better-than-expected third-quarter earnings and dividend increase are certainly signs that the company is performing well, and if Praesidium (which told its investors earlier this year that 40 percent of its portfolio was in enterprise software) pushes it to do better, then it’s all the better for you.

Progress shares closed Friday at $37.29, and they’re up more than 18 percent so far this year. On Tuesday they reached their all-time closing high of $37.71.

Finally, Progress management has even given its shareholders some transparency on its dividend policy. In the release earlier this month, it said it was setting a target to pay out 25 percent to 30 percent of Progress’ annual cash flow from operations in dividends. 

TJX shareholders get (another) 20 percent raise

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DOUBLE THE DEALS: TJX Cos. has a T.J. Maxx store immediately abutting a HomeGoods store off Route 102 in Londonderry, N.H. Customers can browse both stores without having to leave and re-enter.  

How would you have like to have gotten a 20 percent raise in each of the past four years? If you were a shareholder of TJX Companies Inc., owner of the discount T.J. Maxx, Marshalls and HomeGoods chains, you know what I’m talking about.

Framingham-based TJX Companies Inc. on Friday announced the declaration of a quarterly dividend on its common stock of 31.25 cents per share payable Nov. 30, to shareholders of record on Nov. 9.

This will mark the second consecutive quarter that TJX will have issued that payout, after increasing it from 26 cents per share, or 20.6 percent, during the spring.

That’s a great annual percentage raise, and it’s not exactly news for TJX shareholders.In 2013, the first year the company issued a dividend, the quarterly payout was just 14.5 cents per share. It increased 20.7 percent, to 17.5 cents per share the following year, and then another 20 percent, to 21 cents per share, in 2015. Then it went up by 23.8 percent, to 26 cents per share in 2016.

Shares closed Friday at $73.74, up 53 cents on the day. They’re actually down a bit — 50 cents, or 0.7 percent) from the start of the year.

The stock actually hasn’t done a lot in four years — it closed out 2013 at $63.73, 2014 at $66.11, 2015 at $69.15 and last year at $74.24. It’s been a steady, if unspectacular rise, and there’s been very little volatility. Yahoo Finance reports a beta of 0.44, meaning the shares are less than half as valuable as the market as a whole.

The elephant in the closet: Yeah, but TJX is retail, and thanks in large part to Amazon, retail stocks have stunk. So far, TJX has been relatively immune to Amazon’s threat. TJX is cheap, it turns its merchandise over quickly and its customers seem to know exactly what to expect when they come inside the store. And they get it.

Furthermore, according to a recent article in Forbes, TJX has just four senior vice presidents in addition to its CEO. Macy’s has 10. So TJX appears to run a tight ship.

Valuation? Admittedly, meh.. It sells for 21 times trailing 12-month earnings and 17 times forward earnings (that is, what’s expected in the current fiscal year, which ends in January). So it’s not a blow-you-away bargain. But for what it’s worth, it’s in the same league as Walmart, whose shares sell for 19 times trailing earnings and 17 times expected earnings.   

The stock yield still isn’t much — 1.7 percent. But only a little more than 30 percent of TJX’s earnings are paid out as dividends. So the payout is safe, and has room to grow.

Maybe even another 20 percent next year.

Disclosure: I do not at present own shares of TJX.

 

Why I’m Not Selling My GE Shares

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On Monday, the Dow Jones industrial average leapt more than 250 points. But it was no thanks to General Electric, one of the venerable stock index’s 30 components, and which saw its shares decline modestly.

Again.

It’s been that kind of year for GE, whose stock price has dropped more than 23 percent this year. It’s by far the index’s worst performer, the so-called “Dog of the Dow.” And the past two months, in particular, have been brutal:

  • There was a poor, but not entirely unexpected, second-quarter earnings report in mid-July. That led to CEO Jeff Immelt to announce his resignation. I was starting to become increasingly convinced that he would get in 20 years, just like his predecessor, Jack Welch, and just like his predecessor, Reginald Jones. It was looking like a GE thing. Hire a CEO at 45, and let let him ride it til the end.
  • In mid-August, it was revealed that Warren Buffett’s Berkshire Hathaway had sold all of its (remaining) shares. Of course, there are people who think everything Buffett touches is gold, and everything he rejects is junk — which in turn plays a large role in why his moves end up looking better than they might otherwise be. The copycats give his investment performance a nice little tailwind.
  • Later came word that the company would make $2 billion in non-specified cuts. Boston Mayor Marty Walsh made sure to insist that any action regarding personnel would not affect the number of people (reportedly about 800) coming to Boston in the headquarters move. We’ll see.
  • And finally, several analysts have warned GE will cut its dividend for the first time since 2009, when it slashed the quarterly payout from 31 cents per share to 10 cents. Ouch.

Again, that’s just in the past two months. Shortly before that, analysts began cutting their ratings, in at least one case to “Sell.” They made some noise about sluggish organic growth. Weak cash flow. Face it, the days of former Prudential Securities analyst Nicholas Heymann cheerleading Welch’s every move are long over. 

By the way, I am a GE shareholder. It’s one of two (Johnson & Johnson is the other) that I acquired as part of a dividend reinvestment program nearly a decade ago. And while I am mildly concerned about the potential dividend cut, I have no plans to sell my holdings (and it goes without saying, said holdings are far more modest than were Mr. Buffett’s).

Why?

I guess I just think that GE is too broadly diversified, with holdings in aviation, power, health care, water treatment and, yes, even still light bulbs. It’s too technically sound and its management is too deep and, frankly, too good for this iconic conglomerate to just die. New CEO John Flannery has a lot of problems to solve, but I really think he’s going figure most of them out.

I’ve dealt with a dividend cut before and while I don’t like it, it doesn’t have to be the end of the world. I mean, look at Chrysler a generation ago. It stopped paying dividends altogether in 1980, and didn’t restart them until 1984. It sustained a bankruptcy and a humiliating bailout from the federal government. Yet by 1997, its dividend had roared to $1.60 per share annually — more than half its share price from 20 years earlier (split adjusted).

GE is a hell of a lot better company than was Chrysler, a one-trick pony that was No. 3 in its specialty — making and selling cars.

In my dividend reinvestment plan, I bought 10 shares of GE in May 2008, and paid $32.40 apiece. The dividend then was the aforementioned 31 cents per share quarterly, for a yield of 3.8 percent.

The following year the dividend was cut to 10 cents quarterly (Great Recession, mind you). The share price plummeted to less than $6 at one point, but I kept on reinvesting the dividend payout. I also threw an occasional and spare $100 at it, recognizing that this company simply was not going to fail. It was not WorldCom or Webvan or even AIG. It’s a diversified conglomerate that makes and sells real things — in some cases, very complicated things, like wind turbines, aircraft scanners and CT scanners. Things that make it impractical to attract much competition.  

Today my shares (I now have about 35 of them) sell for a little less than $24. That’s not a good capital return from 2008 — down more than a quarter. But it’s a pretty terrific one from the depths of the spring of 2009. And I’m getting a 4 percent yield while I wait for the dust to clear on this most recent “crisis.” And I really believe it will.

Besides, MSNBC loud-mouth Jim Cramer said this week that GE is “not yet a buy.” Doesn’t that tell you “buy”?

GE recently announced that Mr. Flannery will make his first official report to investors. I look forward to it. And in the meantime, I may even find another $100 to throw at my dividend reinvestment plan.