5 Dividend Stocks That Want to Pay You More

BALTIMORE ( Stockpickr) -- With the S&P 500 up more than 19% year-to-date, it's no surprise that investors are forgetting about dividend stocks this Fall. Sure, I get it. But if dividend payers aren't a key component of your portfolio, you're making a big mistake.

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Value investors have been hand-wringing about the broad market for a while now. They're not seeing many bargains anymore. But dividend yields are a great counterpoint right now. As I write, the spread between treasury rates and dividend yields are as high as they've ever been - an indication that equities are sharing more cash with investors than ever before.

That's good for investors, and not just because it means you get a check each quarter.

Over the last three and a half decades, dividend stocks have outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, based on data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.

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To take advantage of that trend today, we're focusing on dividend stocks that look ready to hike their payouts. 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, 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.

Without further ado, here's a look at five stocks that could be about to increase their dividend payments in the next quarter.


It may seem strange to start with McDonald's ( MCD). After all, the Big Mac maker only just announced a dividend hike on Sept. 18 that brought the firm's quarterly payout to 81 cents per share. But Ronald McDonald's pockets are deeper than that, and MCD looks well positioned to announce another hike, especially in the face of potentially rising rates.

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The McDonald's flag flies on close to 35,000 restaurants spread across 119 countries, making it the standard bearer in the fast food business. Beyond a big footprint, McDonald's also sports stellar execution; the firm earns net profit margins around 20% on a very consistent basis. And their secret is their model: MCD is primarily a franchisor for its store locations, providing the firm with sticky recurring revenues with limited risks. More than that, McDonald's actually owns the land underneath franchised store locations, generating bigger royalty streams from each location than rival quick service restaurant chains.

In recent years, MCD has made a big push to revamp its locations by upgrading stores with features like Wi-Fi and refreshed interiors and upgrading menus with healthier and premium options. While those moves won't ever push MCD out of the quick service bucket, that's really not the point. But sequential top line growth in each of the last several years shows that it's working.

MCD has the wherewithal for another dividend hike in the near-term. In the meantime, the firms' 3.3% yield is no slouch.

Johnson Controls

2013 has been a banner year for industrial manufacturer Johnson Controls ( JCI) -- shares of the $30 billion firm have rocketed 40% since the first trading session of the year. Right now, JCI's dividend payout comes in at a quarterly 19 cents per share for a 1.8% dividend yield. But Johnson Controls has room on its balance sheet to hike that shareholder check in the next quarter.

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Johnson Controls makes HVAC systems, automotive interiors, and vehicle batteries. By a wide margin, JCI's biggest customer is the automotive sector, adding up to two thirds of the firm's total revenues. That's been an enviable position in the last year and change -- especially as a record fleet age and the Fed's zero-interest-rate policy incentivize consumers to upgrade their wheels. JCI is a big player in each of its three businesses, a fact that helps the firm secure the largest orders. As commercial construction continues to recovery globally, expect the HVAC business to get a welcome shot in the arm.

Financially, Johnson Controls is in strong shape, with more than $1.4 billion in cash and investments on its balance sheet. Debt is manageable at $4.5 billion right now, and the firm has managed to churn out sales growth in each of the last four post-recession years. Dividend investors should keep a close eye on JCI...


Even if you don't realize it, there's a good chance you've been a customer of Sysco ( SYY) in the past. Sysco is the standard bearer in the food service distribution business, providing everything from ingredients to par-cooked entrees to services such as menu analysis to 400,000 restaurants, hotels and institutional dining facilities. That makes Sysco the largest food service firm in North America.

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From a food service standpoint, it makes sense to turn to a supplier like Sysco; after all, the firm can take many of the costs and food safety concerns off of a restaurateur's plate, helping profitability down the line as well. Going to a single vendor for food needs simplifies the ordering process as well, and Sysco's scale means that it can source more products for restaurant managers.

Historically, the food distribution business has been very fragmented. And so, Sysco has pursued a growth by acquisition approach to growing its business at the cost of ramped up leverage on its balance sheet. As the firm tones down its buying pace in the years ahead, though, that leverage should remain at very tenable levels. Meanwhile, Sysco has long prioritized dividend payouts for shareholders, so with the cash to cover a hike right now, it looks likely we'll see one in the near term.

Right now, SYY pays a 28-cent quarterly dividend for a 3.5% yield.

TD Ameritrade

A prolonged equity rally is fuelling stellar performance for TD Ameritrade ( AMTD) in 2013. As a brokerage firm, AMTD collects more commissions and higher margin fees from investors when equities are working for investors. That essentially makes it a leveraged bet on stocks right now, and that's been a very good bet to make for the last year and change.

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The brokerage business has been facing some serious challenges in recent years. For starters, the "new normal" of interest rates near zero has wiped float interest, out one of brokerages' biggest income sources from the past. AMTD's ability to adapt to low interest income bodes well for an environment where rates can only go up eventually. Another challenge has been the commoditization of brokers' offerings. To combat that, AMTD has added innovative products to its offerings, ramping up the educational component of its business and acquiring Thinkorswim, a brokerage platform that's found popularity with retail traders.

As I write, AMTD carries more than $6 billion in net cash on its balance sheet. That's enough to pay for almost half of the firm's market capitalization right now. This stock looks cheap, and so does its 9-cent dividend payout. Expect TD Ameritrade to give investors a raise in the next quarter. The firm can afford it.


ADT ( ADT) owns the home security business. The firm sports more than 6.4 million customers, which means that around a quarter of the monitored burglary, fire, and carbon monoxide systems in the U.S. and Canada sport the ADT logo. That's a lucrative business for a few reasons.

ADT's customers sign lucrative, relatively long-term contracts to add ADT's services, a practice that keeps multi-year retention rates extremely high. And because customers go to the trouble (and expense) of installing ADT hardware on their premises, switching costs are even higher. ADT's built-in rate hike provisions in its contracts mean that the firm can adapt to changing costs - something that it recently took advantage of.

Security services aren't all created equal, at least in consumers' minds; that means that all else held equal, ADT can capture more customers than its smaller rivals can. ADT's newer Pulse platform adds more functionality to customers' security systems, adding value for owners and giving ADT a big source of coveted add-on service revenues.

Since becoming a public company, ADT has paid out a 12.5 cent quarterly dividend that currently works out to a 1.19% yield. After a full year of fixed payouts, a dividend hike looks likely in the next quarter.

To see all of this week's Rocket Stocks in action, check out the Rocket Stocks portfolio at Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.


Follow Stockpickr on Twitter and become a fan on Facebook.

At the time of publication, author had no positions in stocks mentioned.

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 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

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