Don't let the stock market's recent rally to new highs distract you from dividends this fall. Capital gains may finally be a decent source of total returns again in 2016, but odds are dividends make up a bigger chunk of your portfolio's upside than you realize right now.
As of this writing, dividends still account for almost a quarter of the S&P 500's performance so far this year. That's no small contribution - and it means investors should be feeling pretty thankful for those payouts this Thanksgiving.
But the significance of dividends on stock market performance becomes a much bigger deal over the long-run. In fact, just over the last ten years, dividends have accounted for almost half of the S&P 500's performance, handing investors the difference between 66.5% gains, and 106.2% gains when reinvested dividends are factored in.
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 four big stocks that could be about to increase their dividend payments in the coming months. Think of it as your dividend preview.
At a glance, 2016 hasn't brought much in the way of upside for shares of aerospace giant Boeing (BA) . Year to date, Boeing is only up 3.4%, trailing the rest of the S&P in a meaningful way.
But that headline stat misses the bigger trend that's been taking place in Boeing's shares - since finding a price floor back in early February, Boeing has actually rallied 25%. Add in dividends, and Boeing's total returns jump to more than 30% over that stretch. Clearly, buyers are in control of this stock right now.
And Boeing could be about to pay investors even more before the end of 2016. The firm looks likely to hike its dividend payout after four straight quarters cutting a check to shareholders of $1.09 per share.
Boeing is one of the biggest aviation companies on the planet, operating a duopoly with European rival Airbus to sell medium and large commercial jets to passenger and cargo airlines. That's good business if you can get it. Barriers to entry are exceptionally high, and both Boeing and Airbus have huge demand backlogs, with Boeing's backlog sitting at approximately 5,600 commercial aircraft. That backlog provides somewhat of a safety net for Boeing's sales. Customers are happy to take delivery of new aircraft as quickly as Boeing can fly them off the assembly line.
In the past, around half of Boeing's sales have come from its defense business, but the combination of rocketing demand for commercial jets and a desire to pare back exposure to governmental budgetary concerns has reduced the defense segment to just 30% of sales. That mix is likely to shift back toward defense under the new administration, giving Boeing the ability to meaningfully move the growth needle as the commercial aircraft unit continues to move significant numbers of aircraft.
Long term, the macro factors bode well for Boeing, as record high airline profits and anxiety over potentially higher crude oil prices and interest rates are likely to encourage carriers to place orders for more modern, fuel efficient aircraft like the 737 MAX, 777X, and the 787 Dreamliner now. Currently, Boeing pays out a 2.9% dividend yield at current price levels, but if history is any indication, we're likely to see a dividend hike in December...