The Dynamic Dividend

Four Dividend Stocks to Target When Gas Prices Fall

Crude oil fell to a new eight-month low earlier this week, which means drivers may soon get some relief at the pump. Lower gas prices would also benefit plenty of corporations by reducing a key input cost and, of course, putting some extra spending money in the consumer’s pocket.

Below is a diversified group of four dividend growth stocks I think income investors should keep an eye on whenever gasoline prices dip, whether it be next week or in the distant future. These companies are not only poised to get an earnings boost from lower fuel costs, but they’re ready and willing to pass those gains on to shareholders.

Darden Restaurants (DRI)

Darden operates full-service restaurant chains, including Red Lobster and Olive Garden. The company’s CEO has said on many occasions that higher gas prices have a “dampening effect” and “serve as a tax” on his customers. Despite oil rising steadily the entire period, Darden grew its EPS by nearly 20% during the fiscal year that ended in May, which raises the question: What kind of numbers could the company churn out given a prolonged respite from high gas prices?

Such a scenario would certainly enable Darden to continue its recent string of bold dividend growth. The company has used seven dividend hikes to increase its payout by an astounding 3,125% since 2002, most recently giving its shareholders a 34% raise at the end of June.

Shares of DRI are currently trading at $48.44, where they carry a 3.55% dividend yield.

Cedar Fair LP (FUN)

Cedar Fair operates regional amusements parks, water parks, and hotels. The partnership’s properties are spread across the country, so they’re not hostage to one geographic region. More importantly, they’re all within driving distance of major markets, which opens them up to a flood of customers when gasoline prices wilt.

Cedar had improved its distribution output for more than 20 consecutive years until the recession crushed its streak. The partnership made the prudent decision to cut (2008) and eventually suspend (2009) its payout and sell assets in order to pay down debt during height of the financial crisis. As a result, Cedar was armed with a much-improved balance sheet in late 2010, when it rebooted its dividend — which now looks ready for takeoff.

Cedar raised its quarterly payout by 20% to $0.12 per share at the beginning of August, and said it plans to pay dividends totaling $1.00 per share in 2011 — and expects the figure to bloat to $2.00 per share by 2013. That means (assuming those forecasts come to fruition) the stock is currently trading with a gigantic “hidden” yield.

FUN is trading at $18.75, where its current annual distribution rate ($0.48 per share) produces a solid 2.56% yield. Meanwhile, the partnership’s 2011 payout target ($1.00 per share) produces a 5.33% yield, and its 2013 target ($2.00 per share) produces a 10.67% yield.

Miller Industries (MLR)

This micro-cap manufactures vehicle towing and recovery equipment. Simply put: The less tow operators are forced to spend on fuel, the more cash they have available to replace their aging equipment.

Miller can’t come anywhere close to matching the dividend growth records of the other names on this list, but it’s off to a great start: The company initiated its dividend last year, and proceeded to quadruple it this May. Shares of MLR are currently trading at $17.48, where they yield 2.75%.

UPS (UPS)

What, you thought the guy in brown shorts just jogs over to your place and drops those Amazon boxes off?

While UPS does engage in hedging and tack fuel surcharges onto its domestic air and ground rates, the package delivery giant is far from immune to rising gas prices. UPS spent nearly $3 billion fueling up its trucks and jets last year — $600 million more than in 2009. A prolonged period of lower fuel costs would put a huge dent in that expense, especially if it stretches into the holiday season.

UPS has given its shareholders ten raises since initiating its quarterly dividend in 2000, more than tripling its payout in the process. The company’s 11% dividend hike in February was its largest increase in five years.

Shares of UPS are currently trading at $64.72, where they carry a 3.21% dividend yield.