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4 Stocks Ready for Big Dividend Hikes in 2013

Tickers in this article: AAPL F ITW WLP
NEW YORK ( Stockpickr) -- Nearly half a decade after a deep recession, the U.S. economy may finally be poised for a sustained upturn. Economists are now looking for GDP growth in the second half of 2013 to approach 3% or even exceed that level.

A firming economy can have a profound impact on a company's capital allocation strategies. If the economy can finally gain altitude, companies will be increasingly willing to part with all of the cash that has been piling up on balance sheets.

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Some of that cash will be spent on share buybacks and acquisitions, but a big chunk of the money will be earmarked for major dividend hikes. And it's pretty easy to spot the companies that are best-positioned for dividend increases: the firms that still maintain very low payout ratios. Companies that pay out less than 20% of their income can still manage to double their dividends and maintain a payout ratio in the reasonable 35% to 40% range.

Here are four stocks that are likely on the cusp of big dividend hikes .

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Ford Motor

In the middle of the last decade, Ford Motor (F) paid out 40 cents a share in annual dividends. That dividend was eventually eliminated to conserve cash, but thanks to a recent doubling in the quarterly dividend to 10 cents a share, Ford is right back to that 40 cents a share annualized payout.

And this automaker is just getting started. Ford is now so much more profitable than before, and its cash-rich balance sheet is so much stronger, that the dividend might double again from here. A hike to an 80 cents a share annual payout would equate to a 6.1% dividend yield.

Considering that Ford is now quite profitable -- and poised to become even more profitable in coming years as the European and U.S. economies improve -- management will become less fixated on maintaining absurdly high levels of cash. The company had $23 billion in gross cash at the end of 2011 and $27 billion at the end of 2012, and it should have $35 billion in cash by the end of 2014, according to Merrill Lynch.

With such a comfortable cash balance, Ford could support a dividend of at least 80 cents a share, which would still leave the payout ratio below 50%.

Illinois Tool Works

Industrial conglomerate Illinois Tool Works (ITW) managed to hike its dividend at least 20% in 2006, 2007 and 2008, but in recent years has only boosted the payout at a single-digit clip. As cash flow has risen at a more robust pace, ITW's payout ratio has moved steadily lower. The current $1.52 annual dividend is less than 20% of the $8 a share in EBITDA the company generated in 2012.