BALTIMORE (Stockpickr) -- There's no question that 2015 has been a market where every basis point counts -- but have you been paying attention to where the gains are coming from? Year-to-date, more than a quarter of the S&P 500's total returns haven't come from capital gains at all.
Instead, that big chunk of market performance has been paid out in the form of dividends.
The important takeaway? Ignore dividend stocks at your own peril in 2015.
The good news is that it's becoming easier than ever to grab onto big dividend payouts in your portfolio. Total dividend payouts are currently at record highs and rising. And with corporate cash sitting at a record high $1.33 trillion, you can bet that U.S. firms are going to be giving shareholders an even bigger piece of that huge reserve. 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 which names are going to be paying more 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 big stocks that could be about to increase their dividend payments in the next quarter. Think of it as your dividend preview.
Up first is admittedly a bit of a "gimme." Walt Disney (DIS - Get Report) has hiked its dividend payout every year since 2009, and it looks likely to do the same in the second half of this year too. Right now, the firm pays a $1.15 annual dividend that translates to a 1.04% dividend yield. Disney may not be an "income stock" by most investors' yardsticks, but it has been growing its payout consistently. If you'd bought DIS back in mid-2010, you'd actually be seeing a 3.2% yield on cost at current price levels.
Disney is more than just Mickey Mouse and his friends. The cartoon mouse is certainly a major piece of the empire, but TV networks are the real cash cow here. That's because about half of Disney's profits actually come from TV networks. As far as networks go, ESPN is the star attraction. After all, it generates the highest per-subscriber affiliate fees of any cable channel, and it hits a coveted advertising demographic. That one-two punch at ESPN has given the rest of Disney's empire a chance to catch up in recent years.
Outside of TV, Disney owns substantial capital-intense businesses, such as a movie studio, theme parks and a cruise line. While those were drags on overall performance previously, they've been providing attractive returns thanks to hit films and an economic engine that's firing on all cylinders again. Expect Disney to continue to successfully leverage its phenomenal intellectual property portfolio across its businesses in 2015.
2015 has been a rough patch for No. 3 payment network American Express (AXP - Get Report). One of the biggest knocks to shares came from the upcoming loss of its exclusive relationship with Costco (COST), a big partner that helped the firm attract big spenders to the Amex Brand. While Costco Amex cardholders won't be getting cash back anymore from their shopping trips, investors can still plan on collecting more cash back from their Amex shares in 2015.
Right now, the big electronic payments stock offers a 26-cent quarterly dividend. Investors should be on the lookout for a raise this quarter.
American Express owns a valuable brand in a lucrative industry. The firm isn't just a payment network -- it's also the lender behind most of its cards. The global shift towards electronic payments has been a rising tide for all ships in recent years, but Amex's premium positioning and growing partnership deals should give it better-than-average growth potential. As American Express allows other issuers to put cards on its network, the firm should be able to scale up without spending on acquisitions or adding to credit risk to its balance sheet.
While the loss of Costco as a partner is a big public blow for this stock, organic growth has been in the double-digits over the last year. Declining unfavorable terms with Costco arguably puts AXP in a position of power in negotiating future deals, but ultimately, too much attention is probably being paid to the implications of the deal. Another quarter of strong performance could spark some momentum in shares -- and a dividend hike.
EMC (EMC) is another big stock that's operating in a business with huge industry-wide tailwinds. The firm is one of the biggest players in the computer storage market, selling the hardware and software that enterprise customers need to get their data in the private and public clouds. Data storage needs continue to ratchet higher, and that means that enterprise IT budgets have been on the rise, and upgrade cycles have been shortening.
When you buy EMC, you also get exposure to virtualization stock VMware (VMW), which EMC owns 80% of. The big VMW position is attractive because it provides a liquid asset on the balance sheet and a business with more exposure to consumer and small-business customers on the income-statement side of things.
Financially speaking, EMC is in excellent shape. The firm currently holds $8 billion in net cash and investments, enough to cover approximately 15% of this stock's market capitalization at current levels. That's a big risk reducer right now. EMC currently pays an 11.5-cent quarterly dividend, but that payout looks likely to get hiked this summer.
Falling fuel prices have been a great thing for Paccar (PCAR - Get Report) lately. This commercial truck maker moves more vehicles when truck transport volumes are on the rise, and low diesel prices have helped shove active U.S. truck utilization above 95% in 2015. That means that more commercial trucks will be rolling off of PCAR's lines and onto the road in the next few years.
Paccar builds trucks under the Peterbilt, Kenworth, and DAF names, selling vehicles through a network of about 2,000 dealers worldwide. Paccar's brands are well known for quality, which is particularly important in trucking, where operators live and die by uptime stats. Likewise, the firm's huge dealer network provides a service advantage over competitors that lack the same geographic footprint for service centers.
There's a big incentive for trucking operators to upgrade their fleets right now. With climbing fleet ages, record-low interest rates, and the understanding that low fuel prices won't last forever, there are some big incentives to upgrade to a newer, more efficient model. PCAR's revenues have been hitting new highs as a result.
This firm's dividend payout ratio is sitting on the low-side of its historic range right now, and that should help set the stage for a dividend hike this summer. For the time being, PCAR pays out a 22-cent quarterly check to investors.
Garmin makes electronic devices that operate using global positioning system satellites to provide position data. While the firm financed its growth on portable car navigation units, Garmin's product lineup today includes everything from high-end aircraft avionics to golf and fitness watches.
Investors have been nervous about GRMN's ability to make money for the last several years thanks to the commoditization of car navigation products. But the bear case really hasn't played out. Instead, Garmin has found lucrative markets in places such as fitness and outdoors, generating net profit margins that consistently fall in the double digits. Because Garmin can take R&D costs from its more complex (and lucrative) niche products and apply that technology to its lower-margin businesses, it's been able to consistently beat Wall Street's expectations.
From a financial standpoint, Garmin is in excellent shape. The firm currently carries more than $2.6 billion in net cash and investments and no debt. In other words, about 28% of Garmin's market value is paid for by cash in the bank. Garmin has historically been a big dividend payer, and that isn't changing in 2015. Right now, the firm pays a 51-cent quarterly dividend that adds up to a 4.5% yield. Look out for a raise as GRMN looks to improve shareholder returns with cash on hand.