Lockheed Martin Corp. (NYSE: LMT) may be in the defense sector and at risk of austerity measures, but its dividend hike of late 2011 was for a yield of 5.2%. That only screens out as about 4.4% now that shares hit a new 52-week high. In the new age of austerity, the $30 billion defense giant might not be able to take the same 33% dividend hike it took in late 2011, but it is still expected to grow earnings, and that $1.00 quarterly payment may get hiked to $1.10 or $1,15 in the next 45 to 60 days.
McDonald’s Corp. (NYSE: MCD) has raised its dividend each and every year since paying its first dividend in 1976. It is has a new CEO after a near-decade run higher under high dividend payouts. So its new CEO probably has no choice but to raise the payout here, even if the growth and business trends seem to have peaked. The last $0.70 payout declared was the fourth consecutive dividend paid out a that rate, and this stock has been stuck in the mud after being the best DJIA stock in 2012. Our take is that Mickey D’s will raise the payout to $0.75 per quarter, which will be about half of its expected adjusted earnings in 2013. After all is said and done here, the new CEO needs to show that he is confident about the future, and it is not exactly like the Golden Arches has to reserve as much cap-ex spending for growth like many other businesses.
Microsoft Corp. (NASDAQ: MSFT) has now had four consecutive $0.20 payouts per share per quarter, and a dividend hike announcement could come as soon as September. With estimates for its fiscal June 2013 year at $3.02 and a $0.80 annualized payout, that is only about 26% of its adjusted earnings being paid out at the same time that it has a massive cash trove. Depending on its outlook, Microsoft could even decide to do a massive one-time dividend to reward shareholders with only a 15% dividend tax, if that is believed to change substantially in 2013. Its 2.6% dividend yield compares to the 3.4% paid by Intel Corp. (NASDAQ: INTC). Microsoft shareholders would like to see its stock rise back up to $35 and maybe even $40. A more aggressive dividend policy may be what it will take to get there.
Telecom payouts still beat utilities … We are looking for dividend hikes soon from both AT&T Inc. (NYSE: T) and Verizon Communications Inc. (NYSE: VZ). With the Apple Inc. (NASDAQ: AAPL) iPhone 5 less than a month away, how could more dividend hikes not be expected here. AT&T raised its dividend by 2.3% last December, and we would expect that same 2% or so dividend hike to be the case again in 2012 and beyond. The company has raised its payout to shareholders for 28 consecutive years. Rival Verizon has raised its dividend in announcements in early September in each of the past two years, with last year’s hike coming in it 2.5%. These two payouts remain the biggest dividends of the 30 DJIA components, and the frothiness of the share price is anticipating dividend hikes.
Walt Disney Co. (NYSE: DIS) has that annualized payout when it pays a dividend, something which we hope that The Mouse House will move away from. Its dividend was static from 2007 to 2009, but as the economy has improved after the recession so has its dividend. The most recent hike was very high at 50% (to $0.60 from $0.40), and we would not expect a hike of that magnitude, but this last payout is only about 20% of its adjusted earnings expectations, while many established DJIA components pay closer to between 30% and 40% of their income out. Our take is that Disney will hike its payout to $0.70 or $0.75 before the end of this year, or $0.80 on an outside shot.
Yum! Brands Inc. (NYSE: YUM) is supposed to be the fast-food growth engine of China here in America, and perhaps the company wants to show that it can still open one store per day in China. The company last hiked its dividend in September 2011 by 14% to $0.285 per share, and the company said that it had increased its dividend each year at a double-digit percentage rate since initiating a dividend in 2004. Yum! The Yum! dividend policy continues to target a payout ratio of 35% to 40% of annual net income. If it wants to continue at the same double-digit growth rate, then that dividend needs to be hiked to $0.31 or more, which would come to about 38% of Yum!’s expected adjusted earnings for this year and about 33% of next year’s expected adjusted earnings.
If you want some other dividends to peruse for higher and higher payouts and dividend growth via funds and exchange traded funds, here are some other ideas that avoid the risks of individual stocks.
PowerShares Dividend Achievers (NYSEMKT: PFM) is a dividend-growing, ETF but it has not grown as much as some might have expected. Its annualized payout over the past four payments alone was 2.12% as of today, but it truly does rise through time.
A rival dividend growth fund is the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG), with a yield of closer to 2.1% but with more than 800,000 shares per day.
There is also the iShares Dow Jones Select Dividend Index (NYSEMKT: DVY), with a dividend north of 3% on a 12-month look back, and it is active with about 1 million shares trading each day.
iShares Dow Jones US Telecom (NYSEMKT: IYZ) has AT&T and Verizon as about 30% of its assets and some of the lower quality names drag its yield down to about 2.8%, with more than 400,000 shares trading each day. The Vanguard Telecom Services ETF (NYSEMKT: VOX) is a close rival but has less volume of 60,000 shares or so, with only about 62,000 shares trading hands on an average day.
In utilities, there is the Utilities Select Sector SPDR (NYSEMKT: XLU), which trades more than 6 million shares per day, and its yield is just under 4% now because its share price has risen more than 4% this year after gaining almost 20% last year, with utilities being the best S&P 500 sector in 2011.
JON C. OGG