BALTIMORE (Stockpickr) -- Think dividend stocks are boring? Think again, especially this year.
Decent stock performance has been hard to come by in 2015. And that's why eschewing a source of total returns, like dividends, is such a bad idea. Year-to-date, dividend payouts have contributed more than 20% of the S&P 500's returns. Move over to the big-stock centric Dow Jones Industrial Average, and dividends make up more than a third of the Dow's returns this year.
Put simply, ignore dividends at your own peril.
The good news is that it's becoming easier than ever to grab on to 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, though, 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 tobacco giant Altria (MO). Altria tips the scales as the biggest cigarette maker in the country; its flagship Marlboro brand alone claims more than 40% of the U.S. market. The firm also owns Ste. Michelle Wine Estates and a 27.1% stake in large brewing company SABMiller (SBMRY), a welcome bit of diversification considering the fact that the cigarette business is dying a slow death here in the U.S.
That's right: Domestic cigarette sales volumes are in a long-term decline. And Altria doesn't have growth prospects overseas either; it spun its ex-U.S. business into Philip Morris International (PM) back in 2008. But none of that changes the fact that MO looks likely to boost its big 4% dividend yield. After all, while cigarette sales are in a slow decline, Altria gets about half of those total sales. The firm also benefits from a sticky customer base, fat margins, and great pricing power.
New products actually hold some promise for Altria right now. The firm's Nu Mark e-cigarette subsidiary gives is exposure to a growing market, for example. Likewise, MO's huge exposure to the alcoholic beverage business is a major offset to the legacy cigarette market.
Right now, Altria pays a 52-cent quarterly dividend -- but after four straight quarters at that level, investors should look for a dividend hike this summer.
Home improvement retailer Lowe's (LOW) sells everything from lumber to lawn mowers through a network of 1,850 big-box stores across North America. The firm has been benefitting from an upswing in home prices in recent years, as increased home equity values spur homeowners to invest in projects again. LOW has been taking full advantage of that shift, boosting its exposure beyond the DIY market by acting as a booking agent for installation services as well.
It's working too. Lowe's generated $2.7 billion in profits last year on $56 billion in revenues, eclipsing its pre-recession highs by a big margin.
Lowe's should continue to have some big tailwinds here at home. The firm is an innovator in the merchandising space, with a big presence is store-brand private label products. Offerings such as MyLowe's have the dual benefit of tracking consumer habits and adding value for shoppers who want to remember exactly what paint color they bought last year (which adds stickiness to the Lowe's brand).
Historically, LOW has been a good steward of shareholder value. The firm's dividend payout ratio has ranged somewhere between 25% and 80% of net income in recent years, so with that payout percentage at just 32% right now, we're clearly on the low-end of the range. Look for a boost to Lowe's 23-cent quarterly payout in the near-term.
For a "sweet stock," Hershey (HSY) sure has been leaving a bitter taste in investors' mouths in 2015. Year-to-date, shares of this $14.7 billion chocolate giant have slid by about 10%, falling short of the S&P during a time when performance has already been hard to come by. But now might just be the right time to buy HSY. After finding a key bottom at $90, shares are turning up in May. And management could soon be adding onto those total returns with a dividend hike.
Right now, HSY pays a 53.5-cent quarterly dividend per share that adds up to a 2.3% yield.
Hershey is the biggest candy maker in the U.S., with about 45% of the country's chocolate market. The firm's biggest brands include Reese's, Kit Kat and Twizzlers in addition to its popular namesake products (about 80 different products in total). HSY's reach isn't limited to the U.S. market, however. About 15% of sales come from sales in some 70 different countries.
Operationally, Hershey is in good shape. The firm has been able to maintain margins well in the double-digits, a stat that's helped by the fact that 99% of candy sales are name-brands such as Hershey. Dividend hikes have lagged HSY's earnings growth over the last few years, and that makes Hershey a prime candidate for a dividend hike in the near-term. If history is any indication, investors will get their raise in late July.
Some things just go together: peanut butter and jelly; milk and cookies; garbage and dividends.
That last one might sound like an odd combination to the uninitiated, but the fact of the matter is that waste management stocks actually have a stellar track record of being big income payers over the long-term. Republic Services (RSG) is no exception.The second-largest waste management services firm in the country, Republic currently pays a 2.8% dividend yield.
Republic operates 340 individual collection companies and nearly 200 landfills. The rebounding economy has been a major tailwind for RSG. As garbage volumes increase, so too do the firm's revenues. Incidentally, those revenues hit a record $8.8 billion in the most recent full year; of that, Republic converted 6.2% to profits. Traditionally, Republic has opted to pay as much as three-quarters of its GAAP profits to investors in the form of dividends, which means that as profits keep climbing, so should those dividend checks.
Republic Services has paid a 28-cent dividend for the last four straight quarters. Stay tuned: The firm has boosted its dividend every July since 2010.
Last up on our list of potential dividend hikers is Darden Restaurants (DRI), the $8 billion parent company behind chains such as Olive Garden, LongHorn Steakhouse and Bahama Breeze, among others. All told, Darden counts more than 1,500 locations, about half of which are Olive Gardens. 2015 has been a solid year for DRI so far, with shares of this causal dining restaurateur up almost 11% since the calendar flipped to January.
Darden has gotten attention from its ongoing battle with activist hedge fund Starboard Value, which took control of DRI's board back in October. With most of the proxy drama resolved at DRI, Starboard has the resources to cut costs and boost profitability, a combination that's good for shareholder value creation. The other big perk of a large shareholder like Starboard is a major incentive to return that value to the shareholders, notably in the form of dividends.
While much of Starboard's plan involves revamping DRI's core Olive Garden locations, many of the firm's other concepts have actually been very well run. For instance, DRI has built hefty exposure in more upscale restaurant chains such as Seasons 52 and Capital Grille, a segment of the market that's been a strong performer lately.
Right now, DRI pays a 55-cent quarterly dividend per share. Investors should look for a raise when DRI reports fourth-quarter numbers next month.