5 Dividend Stocks Getting Ready To Pay You More
The automatic tax hikes on dividend income would increase the rates Americans pay on dividend income by around a third, effectively erasing the 35% increase in dividend payouts that investors in the S&P 500 have enjoyed since the market started its rebound in 2009. Around half of that dividend performance has come in the last year alone -- S&P 500 components currently pay 17.85% more in cash per share than they did a year ago. Right now, Mr. Market is pricing in a resolution for most income investors' tax situation in the year ahead.
Those are impressive growth rates for dividend payouts, but with corporate cash at record highs and interest rates being held near the ground, it's likely we'll continue to see firms opt to return cash to owners. Make no mistake -- that's a very good thing. Historically, bigger dividends correlate with bigger total returns for investors.
We're trying to step in front of the next set of dividend hikes this week.
In other words, these five firms are getting ready to boost dividends; they just don't know it yet.
In the past few months we've had some stellar success in finding future dividend hikes just by zeroing in on a few key factors. Now we'll look at our crystal ball and try to do it again.
For our purposes, that "crystal ball" is composed of a few factors: namely a solid balance sheet, a low payout ratio, and a history of dividend hikes. While those items don't guarantee dividend announcements in the next month or three, they do dramatically increase the odds that management will hike their cash payouts, especially as investors start to get antsy about this late-2012 correction.
Without further ado, here's a look at five stocks that could be about to increase their dividend payments in the next quarter.
First up is financial firm American Express (AXP) . With a dividend yield of 1.43% right now, AmEx is by no means a core income holding -- but that modest dividend payout can still have a material impact on shareholders' returns in this market. After all, it's worth noting that investors who bought shares back in the slump year of 2009 are sitting on a 4.7% cost yield right now. It looks like that yield could be headed higher in the next quarter.
American Express owns one of the premier payment card networks in the world. While it trails behind rivals like Visa (V) and MasterCard (MA) in terms of the number of cards issued, AXP beats its peers in terms of dollar volume. Because American Express' high-end brand enables the firm to charge deeper fees than other card issuers, the firm's profitability is enviable. On the flip side, AmEx is the sole big-three card network that's also an issuer, a status that throws extra risk on the firm's balance sheet. The firm's more recent embrace of third party issuing banks should help the firm grow its fee revenue without expanding its exposure to credit risk, a good tradeoff in my view.