Merck & Company recently surprised the markets with a dividend hike and it truly was a surprise. Have Big Pharma earnings become predictable enough even with patent expirations coming down the pipe that the payout hikes can finally begin? The 11% payout hike to $0.42 from $0.38 per quarter was the first hike since September of 2004. The new dividend yield is 4.7% and the $35.70 price compares to a consensus price target of $39
.85.
Microsoft recently raised its dividend to $0.20 from $0.16 and it should trade ex-dividend any day. While this dividend represented a large boost of 25%, it is actually a far cry from what many investors have been hoping for. With the billions and billions of dollars in the Microsoft arsenal, some are hoping that Microsoft will do a one-time dividend and will increase its payout even higher. With shares trading around $26.50, the new $0.80 per year payout comes out to right over 3% with about a 30% income payout ratio and the consensus price target is $31.70.
Pfizer had already been raising its dividend and the $0.20 per quarter payout in early November was the fourth quarter in a row. The pre-cut dividend in 2009 was $0.32, so another marginal dividend hike of 10% would still be well under its peak dividend of $0.32 per quarter. The yield is close to 4.0% now, which is not too shabby but still under the new implied 4.7% payout of Merck. The $19.80 price compares to a consensus price target of $23.39 and its dividend payout ratio is currently less than 40% of expected income. Another dividend hike here seems likely in the weeks or months ahead, probably to $0.22 per quarter.
Procter & Gamble has been a serial dividend hiker before, during and after the recession as consumer products are supposed to be nearly recession proof. A run into commodity prices and in-store placement cost hikes have failed so far to hurt its dividend raising. Its payout in October of $0.525 was the third consecutive payout of the same rate, so we will be expecting a payout hike announcement early next year for a payout boost to $0.55 to $0.57 for an April payout hike.
Travelers Companies has managed to raise its payout each year before, during and after the recession. That is very surprising for a financial company. The September payout of $0.41 was the second payout at that rate, which leaves one more dividend in December 2011 and one more for March 2012 before it would consider hiking its payout for the June dividend payment. The current yield is about 2.8%. The $57.50 price compares to a consensus target of $61.00, but the payout ratio is very subjective since earnings are lower in 2011 and supposedly growing in 2012.
United Technologies also raised its dividend before, during and after the recession but the conglomerate tends to raise its payout after each five-quarter intervals rather than every four quarters. We are just about at three straight payouts of $0.48 per quarter so we will not be looking for a dividend hike until the summer of 2012. The current yield is 2.4% and the $78.85 price today compares to a consensus price target of $89.67. The current payout ratio is about one-third of expected 2012 income.
Verizon Communications already boosted its payout by more than 2% to $0.50 per quarter for its October payment. That being said, there is a high yield of about 5.3% but we do not look for a dividend hike possibility for about another 11 months. The company is paying out about 80% of its expected 2012 income and its $37.10 price compares to a consensus price target of $38.75.
Walmart is just about to have its fourth payout of $0.365 in December, so we would look for another dividend hike for that March 2012 payout. The last hike was by 15% and at some point the retail giant has to consider a safe payout ratio that balances its share buybacks and its cap-ex plan. The good news is that Walmart does not exactly need buyout capital nor does it need major expansion capital. The current yield of about 2.5% was closer to 3% before the most recent pre-earnings rise. Now shares have pulled back to $57.40 and the pre-earnings target was within a few cents of $60.00.
Walt Disney is unusual in that it pays its dividend out annually rather than quarterly. Annual dividends might not entice investors to hold if they worry that hard times are coming, particularly with what is a paltry 1.1% yield today. The Mouse House is also only paying out close to 15% of its expected 2012 earnings. The last dividend hike was on December 1, 2010 so if a hike comes it should be announced within the coming weeks. The 2010 dividend was raised to $0.40 for an annual payout, but that the payout had been $0.35 for three straight years prior to that. We would like to see a payout raised to about $0.50 but the yield has been low here for some time already.
JON C. OGG
