The markets may have topped and are acting choppy after Fed speak and after North Korean rhetoric, but U.S. investors can count on several big dividend hikes that we see as being almost certain this month. In fact, CNBC just ran a feature interviewing us on Wednesday’s session of the Closing Bell segment.
We expect dividend hikes from the Dow Jones Industrial Average components Exxon Mobil Corp. (NYSE: XOM), Chevron Corp. (NYSE: CVX), Johnson & Johnson (NYSE: JNJ) and International Business Machines Corp. (NYSE: IBM). One company that could almost be a DJIA stock is Dow Chemical Co. (NYSE: DOW), and we see a dividend hike there too.
As far as what these dividends will go up to, here are the current quarterly dividend payouts and what we think they will rise to:
- Exxon Mobil — $0.57 now, likely $0.65 ahead
- Chevron — $0.90 now, likely $0.95 or $1.00 ahead
- IBM — $0.85 now, probably to $0.95 ahead
- Johnson & Johnson — $0.61 now, probably $0.65 ahead
Exxon could boost that dividend more than 30% to an annualized $3.00 if it really wanted to, and that would get it more competitive with Chevron. Chevron already yields 3.0%, versus just 2.5% from Exxon Mobil. These two oil giants pay out only about 30% of expected income, and that still leaves plenty of room for buying back shares as well.
IBM really needs to play catch up here. Its dividend yield is a full point behind Cisco Systems Inc. (NASDAQ: CSCO), and Cisco has paid dividends for only two years. IBM pays only half the yield of Microsoft Corp. (NASDAQ: MSFT) as well. If IBM is going to have $20 in earnings per share in 2015, then a $3.40 payout going up to $4.00 is not a real chore, and it still leaves plenty of cash to keep buying back shares.
Johnson & Johnson is already yielding 3%, and its last dividend hike was 7%. Its payout is expected to rise roughly the same as what would keep its earnings payout close to the same as before, and the stock did just hit a new all-time high.
General Electric Co. (NYSE: GE) remains a dividend wild card for us. We know a hike is coming, but we are not sure if Jeff Immelt will wait until the end of this year or whether he will raise it sooner. The company has forecast that its payout will go up at the same rate as earnings. That being said, the $0.19 payout would likely go to $0.21 per quarter. GE already outyields its conglomerate peers with a 3.3% yield.
Dow Chemical is already paying out more than half of its adjusted earnings, and it yields 4%, versus only about 3.5% to 3.6% for the DJIA stock rival E.I. du Pont de Nemours and Co. (NYSE: DD), better known as DuPont. Any gains we see there likely would be nominal, but we do expect gains. As far as why we expect gains in the payouts, the $0.32 quarterly payout now compares to $0.42 per quarter back before it cut the dividend going into the recession.