With dividends accounting for one-third to half of total returns through time, investors love solid dividends. High dividends today are great, but companies that have demonstrated often that they have safe dividends that can be and will be raised repeatedly are where most seasoned dividend investors focus. With less than 45 days remaining until the start of 2016, the goal of 24/7 Wall St. is to identify those companies that are likely to announce dividend hikes between now and the end of 2015.
In an effort to keep this properly tuned to an investor mindset, 24/7 Wall St. has identified which companies would announce dividend hikes before year-end. Some of those actual payments might not be made until early in 2016, but an effort has been made to focus on a dividend history and predict how much the dividend can actually be raised, and we also have taken the dividend coverage a company has via adjusted earnings per share into consideration. Other considerations have been made as well.
It turns out that Dow Jones Industrial Average stocks just have a habit of lifting dividends. After all, they are Dow stocks for a reason. That pointed six big dividend hikes toward Boeing Co. (NYSE: BA) in aerospace and defense, Intel Corp. (NASDAQ: INTC) in processors and memory, 3M Co. (NYSE: MMM) in conglomerates, and Walt Disney Co. (NYSE: DIS) in media and entertainment. It also included the likes of former DJIA component AT&T Inc. (NYSE: T) and of MasterCard Inc. (NYSE: MA).
The dividend hike status of General Electric Co. (NYSE: GE) remains open, with a bias to a hike next year rather than this year. A dividend hike from CVS Health Corp. (NYSE: CVS) also seems likely, on a more moderate basis than in years past.
Other consideration was given for companies versus peer dividends. After all, if a company’s dividend is far higher than peers, then it may have less pressure to raise its payouts in an overly aggressive fashion. After seeing fresh dividend hike news from the likes of Starbucks Corp. (NASDAQ: SBUX) and McDonald’s Corp. (NYSE: MCD), 24/7 Wall St. wanted to alert investors which large companies would be next on the dividend hike warpath before year’s end.
AT&T Inc. (NYSE: T) is fresh off its DirecTV acquisition, and the opinion of 24/7 Wall St. long before the deal closed was that DirecTV actually would bring stronger dividend coverage. In October, the third-quarter earnings report noted that AT&T’s free cash flow dividend payout ratio was 57% year to date, improved from 67% in the second quarter. The company even increased its adjusted EPS and free cash flow outlook for the year to adjusted EPS in the $2.68 to $2.74 range and free cash flow in the $15 billion range or better. The corresponding dividend hike in prior years has been in mid-December, and 2014 was AT&T’s 31st straight annual hike, with a 2.2% payout hike.
Shares of AT&T were closed most recently at $33.26, with a consensus analyst price target of $36.96 and a 52-week trading range of $30.97 to $36.45. The company has a dividend yield of 5.8% and a market cap of $204 billion.
This aerospace and defense giant may be close to 10% off of its highs, but Boeing Co. (NYSE: BA) has a long runway full of income ahead of it. The maker of the 787 Dreamliner last hiked its dividend in mid-December 2014, with a $12 billion buyback, and the dividend went up by 25%. Due to a lack of real growth in earnings per share in 2015, we would expect a much more modest hike this time around, probably in the range of a 5% to 10% higher, so that Boeing is not running into a 50% payout ratio. Remember, Boeing wants to buy back shares too and had spent $6 billion on that alone in 2015 as of the third quarter. Boeing’s most recent backlog was listed as a whopping $485 billion, with nearly 5,700 commercial airplane orders.
Boeing shares were recently trading at $146.08. The stock has a consensus price target of $162.83 and a 52-week range of $115.14 to $158.83. The market cap is about $98 billion and the dividend yield about 2.5%.
The $0.96 annualized dividend Intel Corp. (NASDAQ: INTC) has been paying is just over 40% of its adjusted earnings. Intel is expected to announce a hike sometime around its Annual Investor Meeting on November 19, 2015. Intel should raise the payout, but it has pending merger and venture efforts and most of Intel’s cash is locked up overseas. Still, Intel was the best performing DJIA stock of 2014 and its shares are down in 2015. The processor and chip giant already yields about 2.9% and is up against $2.25 or so in normalized EPS ahead. It seems likely that Intel will raise its dividend to $1.00 per share on an annualized basis.
Shares of Intel were trading at $32.64, with a consensus price target of $34.95 and a 52-week range of $24.87 to $37.90. The dividend yield is 3.7%, and the market cap is $154 billion.
3M Co. (NYSE: MMM) was a good performer from 2012 through the end of 2014, but valuations got stretched and its payout ratio has risen to over 50%. The conglomerate last raised its dividend in mid-December 2014 with a 20% hike, but investors should look for a more modest hike ahead, unless 3M says it is ruling out any big cash acquisitions ahead. It just seems safe to expect that this is either the last big payout hike for a while, or 3M will moderate the growth in that payout ratio — the dividend was $0.635 in 2013 and is $1.025 now. 3M was strong enough that it raised its dividend during the recession and it has been a habitual dividend raising machine.
3M shares were recently at $157.03. The consensus price target is $160.08. The 52-week range is $134.00 to $170.50. 3M has a market cap of more than $96 billion and a dividend yield of 2.6%.
After rival credit card processing and clearing giant Visa announce a good dividend hike, MasterCard Inc. (NYSE: MA) almost has to do so as well, so a dividend hike may be seen in the coming weeks. MasterCard’s payout hike was by 45% in the December 2014 announcement, but the issue for both MasterCard and Visa is that they yield less than 1%. Visa’s dividend payout went up by 17%, and MasterCard only pays out about 20% of its adjusted income per share now. Is a 20% to 25% dividend hike fair to expect? Even doubling its dividend would be about a 1.3% yield.
MasterCard shares were last seen at $98.07. The nearly $111 billion market cap company has a dividend yield of 0.6%. The consensus price target is $111.61, and the 52-week range is $74.61 to $101.76.