BALTIMORE (Stockpickr) -- So far, 2014 has been a spectacular year for dividend investors. Despite this low-interest-rate environment, companies in the big S&P 500 index are cutting bigger checks than ever before. And they're on pace to hit even higher levels in the year ahead.
According to S&P Dow Jones Indices analyst Howard Silverblatt, S&P components are on track to pay out more than $41.2 billion in dividend checks in November, a record monthly payout for the big index. That number is up 13.29% from last year's payout total, boosted by record cash holdings by U.S. companies and the need to deliver meaningful returns back to investors.
While there's no question that low rates have created a challenging environment for income investors, it's also true that, relative to other income investments, it's hard to beat the payouts found in the stock market right now. But to find the biggest benefit from dividends, it's not enough to simply buy names with big payouts today. You've got to think about what they'll be paying tomorrow too.
So instead of chasing yield, we'll try to step in front of the next round of stock payout hikes.
For our purposes, that "crystal ball" is composed of a few factors: namely a solid balance sheet, 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 to shareholders. And they've helped us grab onto dividend hikes with a high success rate in the past.
Without further ado, here's a look at five stocks that could be about to increase their dividend payments in the next quarter.
Up first is big pharma firm Pfizer (PFE) - Get Report . Like other huge drug makers, Pfizer boasts a big dividend payout right now -- a 26-cent quarterly dividend check that adds up to a 3.4% annual yield -- and that big dividend looks likely to get boosted in the coming quarter.
Pfizer is the biggest pharmaceutical company in the world. The firm's deep bench of established drugs generates more than $50 billion in sales each year, thanks to household names like Lipitor, Celebrex and Viagra. Despite the persistent threat of patent expirations, Pfizer owns one of the most attractive drug pipelines in the industry, with a number of potential blockbuster drugs inching closer to commercialization.
Financially speaking, Pfizer is in good shape. While drug patent drop-offs have steadily reduced revenues over the last several years, profitability is moving higher as Pfizer streamlines its operations, and the firm's dividend payout ratio is near multi-year lows at 61%. That sets things up nicely for a payout hike in coming quarter. If history is any indication, expect to see management announce the payout boost before the end of the year.
Coca-Cola (KO) - Get Report is another absolutely huge dividend payer that is well-positioned to give investors a raise in the coming quarter. Coke tips the scales as the world's biggest beverage company. While it's best name for its namesake cola brand, Coke owns more than 500 individual brands that range from Sprite, Dasani, Fanta and Powerade. It's also been making waves in the last couple years through major, potentially disruptive, investments in Keurig Green Mountain (GMCR) and Monster Beverage (MNST) - Get Report .
Being the biggest in the business comes with some serious scale advantages. For starters, the firm's sprawling distribution network is hugely efficient and reaches more than 200 countries, factors that keep per-unit costs low. New innovations such as the heavily marketed Freestyle fountain soda machine found at restaurants should help to drive bigger sales from Coke's existing markets (both because consumers love them and because they require locations to stock more flavors). Likewise, the nascent home beverage business that Coke is working on with Keurig Green Mountain has the potential to shake up the industry.
So while most beverage investors are fixated on growth overseas, Coke's established markets are proving in many ways to be the most disruptive. Unloading North American distribution operations should help boost margins by taking an asset-heavy, low profit business off the books. Right now, Coke pays out a 30.5-cent quarterly dividend that's good for a 2.74% yield at current levels. Investors should be on the lookout for a dividend boost in early 2015.
There have been no shortage of reasons to sell Schlumberger (SLB) - Get Report in recent months. This oilfield service stock is down more than 20% from the highs shares hit back in July, bleeding off as oil prices plummet. But that drop could actually be providing a buying opportunity in SLB (and not just because some of its peers are starting to look "bottomy" from a technical perspective).
Schlumberger helps oil companies extract oil and gas out of the ground as efficiently as possible. The firm earns its revenues by selling a menu of niche services, ranging from seismic surveys to well drilling and positioning. Those specialty services -- and the scale to be co-located at many client sites -- means that SLB is able to collect big margins for its trouble. And while dropping oil prices may delay new well projects, it also puts the onus on servicers like SLB to come in and help lower customers' oil production costs.
If lower oil prices persist, then the older average age of operating wells means that SLB's services will be even more in-demand as producers try to battle declining well yields. Put simply, Schlumberger's business is a lot more resistant to oil prices than many analysts realize.
And so it’s the firm's dividend payout. After four straight quarters of a 40-cent dividend check, SLB looks likely to boost its payouts in the quarter ahead.
Drugstore chain CVS Health (CVS) - Get Report has undergone some big changes in 2014: for starters, it changed its name and stopped selling cigarettes in its stores, an indication of the firm's new focus on customers' health. One thing that hasn't changed this year, though, is CVS' dividend. The firm has paid out a 27.5-cent yield for the past four straight quarters, and a hike looks likely in December.
CVS is one of the biggest drugstore chains in the country, with more than 7,000 retail locations spread from coast to coast. But that's only part of the story. The firm is also one of the biggest pharmacy benefit managers in the country, with more than one billion prescriptions running through its system each year. CVS' integrated PBM and drugstore businesses cut out the middleman and drive bigger profit margins at CVS. The firm is hoping that its new health-centric image will help ratchet customer numbers in 2015.
And there's plenty of reason to believe that will be the case. An aging population is driving pharmaceutical volumes, as is the introduction of MinuteClinic health clinic locations at approximately 500 of CVS' retail locations. MinuteClinic it gives customers a cheaper alternative to a doctor's office, and a big incentive to fill prescriptions in-house.
Right now, CVS only pays out a third of its profits in the form of dividends. That leaves plenty of room for management to hike investors' share of income.
2014 has been a good year for Garmin (GRMN) - Get Report . Shares of the $11 billion GPS maker have rallied more than 23% since the calendar flipped to January, more than doubling the performance of the S&P 500. That stock market outperformance is almost enough to distract investors from what's historically been a hefty dividend payout at GRMN. Almost.
So after four straight quarters of a flat 48-cent dividend, Garmin looks likely to boost its payout in the next quarter. At current price levels, Garmin's dividend works out to a 3.4% yield.
Garmin is the league leader in the GPS business. And while the market for car dash GPS units has declined thanks to smartphones and OEM navigation systems, Garmin has found a lucrative business in using GPS as a value-add in other consumer devices. For instance, the aviation and fitness categories are two perfect examples of places where GRMN owns a deep moat. And the big R&D dollars it spends developing $50,000-per-unit flight decks for small planes can flow down to its lowest-common-denominator automotive GPS business at minimal cost. So since Garmin's high-end operations pay for themselves, it can squeeze bigger margins out of its efforts.
Financially, Garmin is in good shape. The firm currently carries more than $2.75 billion in cash and investments on its balance sheet, with no debt. That's enough to cover a whopping 25% of Garmin's current market capitalization, a fact that greatly reduces the risks involved in owning this stock. It also leaves plenty of dry powder available for Garmin to pay dividends to investors.
To see these dividend plays in action, check out the at Dividend Stocks for the Week portfolio on Stockpickr.
-- Written by Jonas Elmerraji in Baltimore.
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At the time of publication, author was long GRMN.
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory that returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.
Follow Jonas on Twitter @JonasElmerraji
Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to TheStreet. Before that, he managed a portfolio of stocks for an investment advisory that returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation. Follow Jonas on Twitter @JonasElmerraji