11 Dividend Hikes From September Too Large to Ignore

September 30, 2019 by Jon C. Ogg

While September 30 marks the end of the month, it is also the end of the third quarter of 2019. The U.S. economy has seen its share of hits to faster growth as global growth continues to slow and as the U.S. trade war with China continues to weigh on companies. What is interesting is that it already was assumed earnings growth was coming down for the S&P 500 as a whole, so it’s a time when companies should be focused on how much they pay out in dividends and use for share buybacks. After all, what if all those overused recession headlines come true.

24/7 Wall St. noticed 11 key dividend hike announcements in September from large-cap companies that were too big to ignore. A threshold for a high dividend hike is not universally considered to be a 10% payout hike here, but many companies are offering 10% dividend payout hikes. Some are offering far more generous payout boosts than that.

Investors love dividends. These can supplement retirement, or they can be reinvested along the way to retirement to act as a pile-on for returns in top of long-term gains. Dividends also can help buffer some pressure to sell shares that have been held for long periods.

Whether or not a recession will really arrive, the consensus estimates from many economic sources have pointed to slower earnings growth. Companies know that once they hike a dividend, they will probably be criticized quite sharply and punished by shareholders if they have to announce a cut in a dividend payment. This means they have to pay close attention to earnings and revenue forecasts and what they will mean for their bottom-line in 2020 and the years after that.

These are not the only dividend hikes from September, but here are 11 dividend hikes announced by large-cap companies in September that looked too large to ignore.

American Express Co. (NYSE: AXP) raised its quarterly payout to $0.43 per share from $0.39. That is a 10.3% hike, and the new payout and a $118.59 share price bring a 1.45% yield. While that might seem impressive compared with the huge banks, Refinitiv’s consensus target price of $132.63 implies that Amex may be undervalued. It still blows away the yields offered by Visa and Mastercard.

Honeywell International Inc. (NYSE: HON) announced a 10% increase in the company’s regular annual cash dividend on September 27, taking it to $3.60 per share from $3.28 per share. The company touted its aggressive capital deployment strategy in support of the hike, and this was its 10th double-digit percentage increase since 2010. With a $168 share price recently, Honeywell yields about 2.15%, and the average of analysts on Wall Street see about 10% upside for the shares. That said, Citigroup sees about 20% upside.

Innovative Industrial Properties Inc. (NYSE: IIPR) raised its dividend payout by 30% on September 13, taking its hike to $0.78 from $0.60 per quarter. With a recent share price of about $94, the new dividend yield will be approximately 3.32%. That may not seem massive considering some real estate investment trusts have even higher yields, but Innovative Industrial Properties is a REIT targeting the regulated U.S. cannabis industry with properties that are leased to experienced state-licensed operators for their regulated medical-use cannabis facilities.

Lockheed Martin Corp. (NYSE: LMT) authorized a fourth-quarter 2019 dividend of $2.40 per share, which is a $0.20 per share hike that represents a payout hike of 9%. That generates a 2.47% yield, based on a recent $388.00 share price. Lockheed Martin also added $1 billion for share buybacks. This September 26 dividend hike was announced despite disappointing earnings this summer.

The giant defense contractor handily outyields the 30-year Treasury, at a time when global tensions are hot, and the $396.60 consensus target price leaves some upside. The street-high target price is up at $440.

Masco Corp. (NYSE: MAS) announced on September 17 that it would hike its dividend payout by 12.5%, up to $0.135 per share from $0.12 per share. While this is only a 1.3% dividend yield that is still less than the 10-year Treasury, Masco has ample room to raise this payout further because its simultaneous announcement of approving up to $2 billion for additional share buybacks is one-sixth of its entire $12 billion market cap.

McDonald’s Corp. (NYSE: MCD) continued to deliver on its shareholder capital return ambitions with an 8% dividend hike. The new quarterly dividend of $1.25 per share, part of its Velocity Growth Plan driving long-term value, is close to a 2.35% yield, based on a $213.16 share price. On top of that outyielding the 30-year Treasury, this marked the 43rd consecutive year that McDonald’s has raised its dividend. The consensus target price of $233.00 also implies close to another 10% upside in the coming year, and presumably the company will manage to grow in the decade ahead.

Also, McDonald’s appears to be on its way to joining the list of top companies hiking their dividends for 50 consecutive years.

Microsoft Corp. (NASDAQ: MSFT) kept up with its pace of dividend hikes with an 11% increase in its payout. On September 18, the software and cloud giant hiked the quarterly dividend to $0.51 per share from a prior $0.46. While his is close to a 1.50% dividend yield and under the 10-year Treasury, Microsoft’s stock has gained 38% so far in 2019. The board also approved a new share repurchase program for up to $40 billion to be used in share repurchases. Microsoft is valued at $1.05 trillion at this point.

One benefit that has helped Microsoft is its dominance in the ESG theme (covering environmental, social and governance issues), and all that cloud growth has kept shareholders more focused on it even over Amazon.

Royal Caribbean Cruises Ltd. (NYSE: RCL) is supposed be very economically sensitive due to its travel-focus in the cruise industry, so it might not want to be super-aggressive on a dividend hike as all those recession fears are growing. Royal Caribbean announced an 11% hike in its payout on September 6, to $0.78 from $0.70 per share. Based on a recent $108 share price, that represents close to a 2.9% yield for new investors. This is also still handily under its consensus target price of $141.47.

State Street Corp. (NYSE: STT) has sold off handily from its highs due to yield curve concerns and lower Treasury yields in general. That said, the custodial bank raised its payout by 10% to $0.52 per share (from $0.47). The $59.80 share price is down from a 52-week high of $87.79 (and from $106.00 at the end of 2017), and it will represent close to a 3.50% yield. Collecting more than a full point above the 30-year Treasury yield should add some comfort as the bank looks to recover its lost ground. Also, the consensus target price is $63.00.

Texas Instruments Inc. (NASDAQ: TXN) turned on nearly a 17% hike to its quarterly payout. This company makes chips for just about everything, many of which may come with zero tariff concerns over time. The dividend hike to $0.90 per share per quarter (from $0.77) and a $127.14 share price will generate a 2.83% yield for new investors. With a consensus target price of $129.19, Merrill Lynch just pointed out that free cash flow here makes the shares worth $150 rather than its prior $145 price objective.

U.S. Bancorp (NYSE: USB) announced a 13.5% payout hike on its dividend on September 17, taking that quarterly payout to $0.42 per share from $0.37. While this is a high dividend hike for such an established bank, investors should keep in mind that this was the formal hike after the Federal Reserve approved its 2019 capital plan at the end of June. That said, U.S. Bancorp now yields just over 3% for new investors at a $55.50 level.