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...
From one vehicle maker onto another -- $52 billion automaker General Motors Co. (GM) is another high-yield stock that looks likely to offer up another dividend boost in the months ahead. For the last four quarters, GM has announced a 38-cent quarterly dividend check that adds up to a 4.5% yield at current price levels. The final dividend check, which was announced last month, goes out to shareholders of record on December 7; once that's out of the way, a dividend hike looks likely next quarter.
General Motors is one of the world's largest automakers, with 11 car brands that are sold all over the world. In the key U.S. automotive market, GM commands approximately 17% of all new car sales. That positioning here at home is particularly important right now -- U.S. automakers got a boost on the heels of Donald Trump's election win, driven by speculation that trade restrictions on foreign competition could give Detroit a material pricing advantage in the world's biggest car market. While the real impact of the Trump administration won't be known for some time, GM's share price is benefitting nevertheless, back within grabbing distance of 52-week highs.
GM has pulled off some big strides in recent years: the company has improved quality and restored its reputation with consumers at the same time new union deals have cut two-thirds of the manufacturer's hourly labor costs. The result is a car maker that's profitable again - and one that has the wherewithal for a dividend boost in the months ahead. GM's dividend payout ratio has slid to just 21% in the most recent quarter, leaving plenty of dry power available for dividend hikes.
Las Vegas Sands
Investors should be paying attention to Las Vegas Sands (LVS) right now. After selling off more than half of its market value from the start of 2014 through the beginning of this year, Sands is in rebound mode. Shares are up more than 42% since the start of 2016, and pushing into new 52-week highs this week.
Meanwhile, the preceding selloff has turned Las Vegas Sands into a dividend stock, crossing above a 4% yield for the first time ever last year.
Las Vegas Sands owns a valuable collection of casino resorts worldwide. The firm's flagship properties here in the U.S. are the Venetion and Palazzo in Las Vegas and the Sands Bethlehem in Pennsylvania. But the cash comes from Asia, where Sands owns half a dozen properties in Macau, Singapore, and Cotai - those ex-U.S. resorts contribute around 90% of the company's profits. Likewise, the firm's exposure to restrictive markets with heavy regulation and limited gaming licenses is attractive.
The success of gaming in Asia has prompted other countries to consider keeping more money at home by issuing gaming licenses of their own. Las Vegas Sands' high-end positioning and track record means that it's likely to win new licenses as more regions become friendly to gaming.
Financially, Sands is in strong shape, with $1.8 billion in cash to help offset its $9.8 billion debt load. Lad Vegas Sands has held its dividend payout at 72 cents for the past four quarters - that means investors are likely to see a boost to their payout next quarter.
Admittedly, paper products aren't the most exciting business out there. But exciting doesn't always go hand in hand with the companies that cut the biggest dividend checks each quarter. Case in point: Kimberly-Clark (KMB) . This $41 billion paper products maker has a long track record of returning value to shareholders in the form of dividends and share buybacks - and those payouts are likely to increase in the quarter ahead.
For the last four quarters, Kimberly-Clark has paid a 92-cent dividend check that works out to a 3.2% yield at current share prices. Based on prior years, KMB looks likely to give investors a raise next quarter.
Kimberly-Clark is one of the largest manufacturers of tissues, diapers, paper towels, and more. The company's household-name brands include Kleenex, Scott, Kotex, and Huggies. While the products themselves may seem pretty mundane, the consumer stickiness and geographic growth opportunities are the drivers that should have investors paying attention to this stock here.
For instance, while around 50% of sales are generated in North America, most overseas sales actually come from emerging markets, where paper disposables are increasingly becoming popular. Here at home, parents average five disposable diapers per day, while Kimberly-Clark's emerging market customers average just one diaper per day. As growing middle class populations help push developing market consumption more in line with the U.S., KMB has a big growth opportunity ahead of it.
There's a timing element to buying Kimberly-Clark here as well. Shares have been correcting since this summer, leaving them down 10% year to date. But KMB has been carving out a bottom for the last several weeks, potentially signaling a technical buy signal on a push through $116. The combination of a breakout through $116 and a looming dividend hike make this paper company worth a second look this fall.