The Great Dividend Hikes Of 2011 Are Underway (CCL, OKE, FINL, JPM, WFC, BAC, CSCO, AAPL, GE, UTX, MMM, WPO)

January 20, 2011 by Jon C. Ogg

The rising dividend theme of 2010 is already continuing in 2011 and this looks to be another great year for investors seeking higher dividends.  We have seen three fresh dividend hikes from Carnival Corporation plc (NYSE: CCL), Oneok Inc. (NYSE: OKE), and Finish Line Inc. (NASDAQ: FINL).  While those are all good, the more important consideration is about the possible waves of newer and larger dividends from key market players ahead.

We already gave The Dogs of The Dow for 2011.  We are looking at key dividend expectations in key sectors for investors in other sectors.  In the money center banks, we are keeping a keen eye on J.P. Morgan Chase & Co. (NYSE: JPM), Wells Fargo & Co. (NYSE: WFC), and Bank of America Corporation (NYSE: BAC).  Cisco Systems, Inc. (NASDAQ: CSCO) is overdue for its technology dividend and now Apple Inc. (NASDAQ: AAPL) may be back in play in the dividend circles again after the Steve Jobs health news.  In conglomerates we are expecting news from General Electric Co. (NYSE: GE), United Technologies Corp. (NYSE: UTX), and 3M Co. (NYSE: MMM) in 2011.

We have outlined the expectations and an outlook on each stock individually.  That compares yields to projected dividend hikes ahead, and we have added additional historical data and additional color on each as well.

Carnival Corporation plc (NYSE: CCL) is not known for being a large dividend payer due to a 0.8% current yield.  That is about to change.  On Thursday the cruise line operator issued an astonishing 150% hike to its payouts.  The old $0.10 dividend is now to be $0.25 per quarter. That is suddenly a 2.2% dividend for new shareholders. Carnival reinstated its dividend after the end of the recession.  It also is trying to express business confidence and increased cash flows and lower cap-ex commitments.

Oneok Inc. (NYSE: OKE) may not be a household name as a distributor of natural gas, but its dividend growth has been extremely impressive.  This week the company boosted its quarterly payout.  The 8% gain was not the impressive part.  What was so impressive is that this was the fourth dividend hike in the last year.  The new rate is $0.52 per quarter rather than $0.48 and this is in-line with what the company gave last year when it said it aims to boost its dividend by 50% or 60% by the year 2013.  The goal is backed by what the company is calling strong cash flows and stable earnings growth.  The new dividend based upon today’s share price of $57.60 generates a 3.6% payout to holders.

Finish Line Inc. (NASDAQ: FINL) is probably going to be a bit difficult to get overly excited about, but this morning it did boost its $0.04 dividend per quarter up by 25% to $0.05.  The former 1% yield will now be 1.25%.

Jamie Dimon of J.P. Morgan Chase & Co. (NYSE: JPM) is likely to be the first CEO to raise the dividend of the banking giants.  The paltry 0.4% dividend yield pales in comparison to before the recession and before the TARP bailout.  The current $0.05 dividend per quarter used to be $0.38 per quarter.  Due to regulatory oversight, it is likely going to be some time before $0.38 is seen each quarter again.  What we do expect is a jump to roughly $0.20 per quarter and we expect that to come before summer of this year.  That would get the common yield close to 2.0%, and we expect Jamie Dimon to say “More dividend hikes are coming through time.”  A payout of $0.80 per year compares to Thomson Reuters estimates of $4.68 EPS for 2011 earnings estimates. Here is the good news: our first dividend reinstatement rate may still be too conservative.

Second on the list is Wells Fargo & Co. (NYSE: WFC).  Its CEO has also promised a return to a higher more normalized dividend rate.  Just don’t expect the current payout of $0.05 per quarter to return to the old $0.34 per quarter rate. The current yield of 0.6% will grow and we expect much of the same from Warren Buffett’s favorite bank as we would from J.P. Morgan.  The payout may go to $0.15 to $0.18 at first, also with the promise of higher payouts.  A $0.60 to $0.80 payout per year compares to Thomson Reuters estimates of $2.78 EPS for 2011 earnings estimates. Wells Fargo is also expected to retire some classes of trust preferred stock as well.

The third on the banking list is Bank of America Corporation (NYSE: BAC) in the dividend reinstatement game. CEO Brian Moynihan has pledged to return to a higher dividend, but this will not likely be at the same rate of the two above.  The current payout is a paltry $0.01 per quarter and that compares to a $0.64 per quarter at the peak.  Thomson Reuters has estimates of $1.48 EPS for 2011, but BofA is well above the old 10% deposit threshold limit and it has more of a mortgage mess due to Countrywide. Still, BofA might be able to get its quarterly rate up to $0.04 or $0.05 at first with a promise of a higher dividend coming through time.

In the world of technology, there are two big ones.  One is for sure (we think) and one is hypothetical.  Cisco Systems, Inc. (NASDAQ: CSCO) is one a dividend we expect to hear about at the earnings report due in February.  John Chambers has capitulated to pressure to begin payouts and that means that shareholders can start getting that cash rather than just using all that money to make small acquisitions and to offset dilution of stock options from employees and the companies it bought. The Thomson Reuters estimates for earnings are $1.61 EPS in Fiscal July 2011 and $1.83 EPS for Fiscal July 2012.  The last indication was a 1% to 2% yield, so we will split the difference and give a static projection of $0.06 per quarter declared.

Apple Inc. (NASDAQ: AAPL) is now one that a dividend has to be considered regardless of the past stance where Steve Jobs has said that he is holding that cash for strategic growth opportunities.  The new factor is the health of Steve Jobs.  We wish him luck in his health battle of course.  At issue is what the “Job-less” management team would do if Steve Jobs suddenly cannot return to the daily grind or if things get worse for him and he has to leave permanently.  Sorry to bring that up, but it is a possibility that we can’t just ignore.  The new team might decide that unloading a large portion of its near-$60 billion cash arsenal would act as a huge cushion for shareholders who might not be as enthusiastic about the shares any longer.

General Electric Co. (NYSE: GE) already boosted its dividend in 2010, twice.  The second was a surprise on fast it came.  Earnings are due on Friday and the estimates for 2010 are $1.12 EPS and $1.29 EPS for 2011.  At issue is the continued improvement of GE’s financial operations and what will be at least one round of cash from Comcast in the NBC-Universal deal.  GE is buying back stock again and is trying to normalize its dividend.  As its stock rises, so will its dividend.  Take heed on the timing.  We would be utterly shocked if a hike comes in the first of 2011.  This would come again towards the end of the year in our mind and we’d look for that $0.14 payout to go to $0.15 or $0.16 per quarter if earnings visibility continues to improve.  Our guess is that the hike will come either at the same time or after the company repays Berkshire Hathaway for its preferred investment during the recession.

Another conglomerate is United Technologies Corp. (NYSE: UTX).  The company keeps raising its dividend payouts through time and it rolls in dividend hikes roughly after each five quarters. We have had four quarters of $0.425 and the prior payout was $0.385. If it keeps a steady and reasonable dividend hike rate, that could go up to $0.46 per quarter or $1.68 on an annualized basis.  This was actually just listed as one of our Large Caps at All-Time Highs from this morning.  The current yield is only 2.1% and 2011 estimates are $5.33 EPS from Thomson Reuters. The timing of this should be one more quarter.

3M Co. (NYSE: MMM) is yet another dividend grower that we expect to hear from shortly with news of a dividend hike.  Its annual dividend hikes have come regularly (only 52 years according to the company) and that means that the payout news is probably due at the earnings release next week.  The $0.525 per quarter is likely to go to $0.54 and that is still only one-third of its earnings expectations for the year as Thomson Reuters has 2011 estimates at $6.11 EPS.  Word has been out that George W. Buckley is leaving and the announcement could be meant to offset any impact there.

You might wonder if there are more dividend hikes other than just banking, tech, and conglomerates coming on the horizon.  The answer is a resounding “YES!” on that front.  More dividend hike projections for 2011 will be made from us in the coming days.

During the writing and editing process of this piece, even Washington Post Co. (NYSE: WPO) boosted its quarterly dividend to $9.40 per year from $9.00 per year paid out at $2.35 per quarter rather than $2.25 per quarter.

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JON C. OGG