With stocks having hit all-time highs and with the bull market now six years old, investors have to consider carefully which stocks and sectors they want to invest in. One area that has remained a favorite is companies growing their dividends year after year. 24/7 Wall St. has identified 12 stocks that are likely to increase their dividends in the next 30 to 60 days.
Please note that this story has been updated to reflect the dividend hikes as they have been announced.
Before thinking that dividends can increase forever, one has to consider each company’s earnings per share, its growth rates and its payout ratios. Then what must be considered is which companies might have limitations on their cash, such as commitments for acquisitions or overseas capital that might be taxed too highly if repatriated.
The long and short of the matter is that investors love dividend hikes. They love buybacks as well, but by raising their dividends companies send the message to investors that they have earnings and cash flow visibility for years and years. Under corporate governance, this may be one of the single best tools for corporate executives to communicate to shareholders.
One thing that investors need to consider in dividend hikes is that these may have become so routine that investors just expect them no matter what. That is a dangerous game, and that is why we have looked at growth rates, balance sheets and stability before making predictions.
Of the 12 expected dividend hikes, four are banks — with two being layups for approval and two being less exact. Despite the oil price woes, we see two dividend hikes coming soon from oil patch giants. We also have three technology stocks on the list, as well as one airline, one consumer products giant and one credit card issuer.
Is it possible that not all these companies will raise their dividends? Sure it is. After all, these are forecasts. Still, these companies have either raised dividends for years or they are in serious need of a dividend hike. For those that might not raise their dividends, let’s just say that they are unlikely to have happy shareholders.
Don’t Leave Home Without an AmEx Dividend Hike!
American Express Co. (NYSE: AXP) caters to higher credit quality clients than many credit card issuers. It maintains a healthy valuation at 15 times expected 2015 earnings, but the stock was the worst performing Down Jones Industrial Average (DJIA) stock year to date as of the end of February. By our take, the company needs to raise its payout by even more to get back on par. This is a DJIA component, and it is one of the top holdings of Warren Buffett. Its past dividend hike was to $0.26 per share from $0.23, with a yield at the time of only about 1.2%. American Express remains among the lowest dividend yields of the Dow.
Over time, American Express has been slow to raise its dividend. The company can boast that its largest shareholder by far is Buffett’s Berkshire Hathaway. It also generally has been able to boast of continued improvements in credit quality since the end of the recession, yet its old $0.18 per share quarterly dividend was held static from just before the recession until 2012, when it was raised to $0.20, then to $0.23 in 2013 and ultimately to $0.26 in 2014.
American Express is still growing its earnings, but it has yet to adequately raise its dividend by an amount worthy of a company that has been in the DJIA for as long as it has been a member. Its annualized $1.04 per share dividend still generates a paltry 1.25% yield. Its consensus earnings estimate is $5.51 per share for 2015 and $5.80 for 2016. It is not under the government’s thumb like the big banks, yet it is not even paying out 20% of its earnings per share in dividends. It seems a safe bet that it will raise its dividend to $0.30 per share in April, but shareholders could — and should — demand more of a dividend hike. Maybe much more.
Apple Dividend and Buyback Coming in April
Apple Inc. (NASDAQ: AAPL) is the darling of Wall Street, as well as every other street you can find outside of Redmond, Wash. Many reports have been issued on Apple, with analysts chasing their tails and stepping all over themselves to raise their price targets. This is about dividends, however, and that of course also includes buybacks. The company has more cash on its balance sheet than the market cap of all but about 30 U.S. companies.
What investors are expecting is a serious dividend hike. China was a huge boost, the iPhone 6 drove the cart and continues to do so, and there are new initiatives from the Apple Watch and whatever they are working on in cars. Apple’s recent stock performance is almost half of the Nasdaq 100 gain so far in 2015, but Apple now yields only 1.5% because its stock has been so strong.
So, what will CEO Tim Cook do? Our guess is that in April, with its fiscal second-quarter earnings, he will boost Apple’s buybacks and dividend handily. As far as what the dividend will go up to, our estimate is that the dividend rises from $0.47 per share to about $0.60, or even higher — and that only gets the yield to almost 1.9%, based on a $129 share price.
Recently, Barron’s predicted that Apple shares would rise to $160 over the next year. One of the driving forces is a juiced up dividend to aid and abet that share price gain.