24/7 Wall St.

It has become almost impossible to argue against the notion that investors love dividends. They also love stock buyback announcements from companies, but when investors have owned a stock for a long time they really love to see when the dividend keeps getting hiked. That sends their effective yield much higher than the stated yield for new investors.

24/7 Wall St. has evaluated many dividend hikes over the years, and we have identified five coming dividend hikes that investors can bank on this summer. One of the five actually announced its hike before this was published, so we also included three runner-up dividend hikes expected before the end of summer.

When it comes to corporate governance, companies return capital to shareholders via dividends and buybacks. This can get tricky for the multinational companies with strong overall balance sheets when their cash is domiciled outside of the United States.

Many Dow Jones Industrial Average and S&P 500 Index companies have already raised their dividends so far in 2015. The following dividend hikes are expected to be announced this summer: Altria Group Inc. (NYSE: MO), Caterpillar Inc. (NYSE: CAT), FedEx Corp. (NYSE: FDX) and Target Corp. (NYSE: TGT).

Insurance giant UnitedHealth Group Inc. (NYSE: UNH) managed to announce the hike before this new round of summer dividend hikes could get issued.

24/7 Wall St. has also included a basic review of these three runner-up dividend hike candidates: Applied Materials Corp. (NASDAQ: AMAT) is still on the fence, while Brinker International Inc. (NYSE: EAT) and Intuit Inc. (NASDAQ: INTU) are likely to be seen later in the summer.

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As a reminder, much dividend and buyback growth in major companies appears to have peaked. That would leave investors perhaps wanting to reward companies that keep raising dividends and having buybacks. These are the expected dividend hike announcements that investors can bank on this summer:

Altria
> Yield: 4.1%

Altria Group Inc. (NYSE: MO) is still considered the king of domestic tobacco, or at least it was until a merger of its two key rivals. Altria’s dividend hikes are generally announced in August and paid in early September. Altria increased its quarterly dividend in 2014 by 8.3% to $0.52, and the previous four-cent hike likely will be the case again in 2015 to $0.56 per common share.

With this stock around $50.60 in June, its dividend yield is now down close to 4.1%. Altria’s share price is down from a high of $56.70, but this current yield is historically very low.

Unfortunately, or fortunately, we just cannot really expect more than the 8% growth in the dividend now that this matches its earnings growth and the 80% income payout rate is more or less the case now. Investors should still ask the same question we asked last year: Should tobacco stocks have lower dividend yields than the top telecom giants?

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Caterpillar
> Yield: 3.3%

Caterpillar Inc. (NYSE: CAT) generally updates its dividend hikes in the first half of June. The heavy equipment maker has raised its dividend by double-digit percentages now for three years running. The problem with expecting another strong dividend hike north of 10% is that earnings are in decline with revenues, and the current payout is roughly half of forward earnings, if things go as expected.

That leaves another dividend hike possible, but we are looking at this with tempered expectations. While the previous dividend hike was a dime to $0.70 per quarter, 24/7 Wall St. just would not expect nor demand that Caterpillar hike its dividend to more than $0.75 this quarter.

Caterpillar can always say that it is going to review another hike as a catch-up later this year if conditions improve. As in 2014, many of Caterpillar’s growth markets and segments remain under pressure, and the strong dollar has been an issue. Trading near $86.20, Caterpillar already yields about 3.25%, so just how much does it need to raise its payout to keep dividend investors happy>

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FedEx
> Yield: 0.5%

FedEx Corp. (NYSE: FDX) is likely to announce what will sound like a very large dividend hike in mid-June, but the reality is that its 0.5% yield, based on a $0.20 quarterly payout so far, is just paltry. For FedEx to boost its dividend ahead in a manner that attracts new shareholders, it will have to raise that payout ratio less than 10%.

FedEx shares are close to $180.00, its annualized past payout is $0.80 for dividends, and the company is expected to earn almost $9.00 per share this year and over $10 per share next year. FedEx is trying to make an acquisition of TNT Express in Europe, and that will speak for €1.5 billion worth of its cash on hand.

FedEx has been more restricted on its ability to hike dividends in the past, but Wall Street likely would not treat the company well if it does not deliver with another good dividend hike.

Target
> Yield: 2.6%

Target Corp. (NYSE: TGT) coincides its dividend hike news around the annual meeting in June, but investors have to be patient after the news because they do not get paid out until August. The 2014 annual dividend hike was by more than 20%, but 2015 expectations may have to be a bit tempered. After all, the data breach is now well over a year old. With annual earnings expected to be $4.63 per share this year, the $0.52 per quarter, or $2.08 per year, is still less than half of the annualized operating income.

Our verdict was that management put the pedal to the metal last year, but with a yield already of 2.6% we would expect close to a 10% payout hike this year. If so, then target’s yield would approach 3%, if the stock pulls back much at all.

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UnitedHealth
> Yield: 1.3%, to 1.7%

UnitedHealth Group Inc. (NYSE: UNH) was slated to be included in this summer dividend hike prediction, but the company raised its payout the same morning we finished the fact checking and formatting. Last year UnitedHealth delivered a whopping 34% dividend hike and announced a massive share buyback plan, and now it has hiked the dividend another 33% to $0.50 per quarter, for a new yield of 1.7%. This is still on the lower side for a Dow Jones Industrial Average component, but the payout is growing, and it was previously paying out only about 25% of operating income as dividends. UnitedHealth was recently named as a runner-up in the 10 stocks to own for the next decade.

24/7 Wall St. has three runner-up companies likely to hike dividends this summer as well:

Applied Materials Corp. (NASDAQ: AMAT) is one on which we have awaited a dividend hike, but the timing of it is unknown. The death of its Tokyo Electron merger just freed up cash, and it has had a $0.10 dividend for nine quarters in a row despite organic growth. Applied Materials pays out about one-third of its expected 2015 earnings and has over $4 billion in liquidity. If it does not hike its dividend this summer, then it likely means that it is looking for another acquisition target.

Brinker International Inc. (NYSE: EAT) generally announces its dividend hikes in August, and the four-cent hike trend seems easy to continue from $0.28 to $0.32 per quarter. That would take the yield up to 2.25% and would only be about 40% of trailing earnings for a company that has seen limited revenue growth.

Intuit Inc. (NASDAQ: INTU) has run into earnings and revenue growth hiccups, but this is expected to get back on track in 2015 to 2016. The company’s last hike was significant at 32%, with about 40% of expected operating earnings being paid out. Now Intuit yields only about 1%, in a time when well-established tech and software leaders with mixed earnings just pay out more in dividends. Just do not expect this hike announcement before August.

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