The economic choppiness is coming to a head with the age of dividend hikes. The pressure is going to remain for companies to continue returning capital to shareholders while also looking for selective global growth opportunities. The established Dow Jones Industrial Average components traditionally offer far higher dividend yields than the other top indexes, and 24/7 Wall St. is offering a case-by-case outlook for what investors should expect in DJIA dividend trends in the weeks, months and even in the year ahead.
If you add up the past 12 SPDR Dow Jones Industrial Average (NYSE: DIA) dividend payments, the DJIA yield has been almost 2.5% over the last year. The good news is that the yield is already higher if you include the hikes that are likely to be announced. The price of the DJIA today should offer what will be closer to a 3% dividend yield in 2012.
The list of the 30 DJIA components is very long, but we have reviewed each and all of the following: Alcoa (NYSE: AA), American Express (NYSE: AXP), AT&T (NYSE: T), Bank of America (NYSE: BAC), Boeing (NYSE: BA), Caterpillar (NYSE: CAT), Chevron (NYSE: CVX), Cisco Systems (NASDAQ: CSCO), Coca-Cola (NYSE: KO), DuPont (NYSE: DD), Exxon Mobil (NYSE: XOM), General Electric (NYSE: GE), Home Depot (NYSE: HD), Hewlett-Packard (NYSE: HPQ), International Business Machines (NYSE: IBM), Intel (NASDAQ: INTC), Johnson & Johnson (NYSE: JNJ), JPMorgan Chase (NYSE: JPM), Kraft Foods (NYSE: KFT), McDonald’s (NYSE: MCD), 3M (NYSE: MMM), Merck & Company (NYSE: MRK), Microsoft (NASDAQ: MSFT), Pfizer (NYSE: PFE), Procter & Gamble (NYSE: PG), Travelers Companies (NYSE: TRV), United Technologies (NYSE: UTX), Verizon Communications (NYSE: VZ), Walmart Stores (NYSE: WMT) and finally Walt Disney (NYSE: DIS).
We have broken out each DJIA component to review the history and expected dividend action individually. While this is a no short read, dividend and income investors better pay close attention here. Value investors should pay attention as well. It is these DJIA components that are often considered as the prize of the sector and many peers are facing the same trends today and tomorrow. Our review focuses on when the last hikes have been seen, when the next dividend hike will come, and what the price and implied upside to the Thomson Reuters consensus price target offers. We also even have shown an expected income payout ratio on each if applicable to further show which companies can boost their payouts ahead.
Alcoa is still hanging its hat on the notion that the aluminum market will double by 2020, so we have to at some point expect the DJIA component to boost its dividends again in the years ahead. Still, the company is trying to accumulate more liquidity and the current climate is a choppy one for metals players. The dividend has been stuck at $0.03 since the first of 2009 and it was $0.17 per quarter before then. Any hikes might only be nominal until the business climate becomes a bit more steady and predictable. The 1.1% is very unimpressive for a DJIA component and we have no great dividend ambitions in the near-term for Alcoa, even if only 10% to 15% of expected 2012 income is slated for payouts. At $10.35, the consensus price target of about $13.25 is well under the 52-week high of $18.47.
American Express has had its dividend steady at $0.18 per quarter since its January 2008 payment and the current yield is only 1.4%. The company’s credit metrics keep improving and its payout is not quite 19% of expected earnings next year. Still, this is a financial stock and it is hard to a financial stock to boost dividends right now. It has no branch bank operations but the climate remains tenuous. At $49.70, the consensus price target is around $55.75 if you trust price targets on financial firms.
AT&T has had four quarters in a row of $0.43 and it has a history of raising its dividend each year. The question that hangs over it is the regulatory block over the T-Mobile buyout and the huge penalty that AT&T will ultimately have to pay out of it cannot clear regulatory hurdles. This is one of the dividend stars with a 5.8% yield but it also pays out more than 70% of its expected income. Another hike is possible, but our take is that the dividend yields are now so high that telecom giants will only ratchet them up slightly. At $29.20, the consensus price target is $31.90.