Remember the dividends. ...
The S&P 500 index may already be up 5.5% just a couple months into 2017, but capital gains are only a piece of the total performance puzzle for investors right now. Simply put, investors who ignore dividends do so at their own peril; in the long-run, dividend checks make up a much bigger piece of your portfolio than most people realize.
For instance, over the last10 years, dividends have accounted for 40% of the S&P 500's performance, handing investors the difference between 57.8% gains, and 95.6% gains when reinvested dividends are factored in.
So, it's not hard to see why passing on stocks that pay out regular cash puts you at a huge disadvantage.
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 even 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.
Leading off the list is tech giant Apple Inc. (AAPL) . Apple is cash-rich. The firm currently carries more than $158.7 billion in net cash and investments on its balance sheet, giving it plenty of dry powder to put to work for dividend hikes. Right now, much of that cash is stashed overseas, but the prospect of a tax repatriation holiday under the Trump administration could free up even more of Apple's billions for shareholder returns this year.
Currently, Apple pays out a 57-cent quarterly dividend that adds up to a 1.64% yield at current share price levels.
Apple is the biggest company in tech. The firm's products range from mobile devices (like the iPhone and iPad) to PCs (the Macintosh) to wearables (Apple Watch) to the world's biggest music store, and everything in between. Critical to Apple's success is the fact that its products complement one another and add functionality, encouraging consumers who already own Apple devices to keep buying more.
Most of the negative sentiment surrounding Apple in the last few years has been pinned on innovation -- or, more specifically, whether Apple can still innovate its way to game-changing products that move the growth needle on the firm's very large top-line. Investors should get an update soon. Apple is expected to announce new products later this month, according to reports from rumor sites. After four straight quarters of the same dividend payout, the time looks right for Apple to announce a dividend hike this quarter.
Nothing goes together quite like utility stocks and dividends -- highly regulated rates plus consistent quarterly consumption means that cash flows are equally predictable for dividend payouts. That's bringing our attention to shares of $49 billion utility Southern Co. (SO) today.
Southern is the local power company for more than 4.4 million residential and business customers in the Southeast, with a network that spans Alabama, Georgia, Florida and Mississippi. The firm also has considerable exposure to natural gas, with more than half a dozen gas distribution companies, as well as stakes in several midstream natgas operations. Southern's operations are focused in the Southeast, a region where power costs are relatively low and regulators have historically been considered business-friendly.
While the threat of higher interest rates has weighed on high-yield stocks like Southern and its utility sector peers, the fact of the matter is that any rate hikes are going to be measured and slow-moving. In other words, they're not going to take the bite out of dividend payers that many market participants believe they will. Likewise, Southern's geographic focus makes it well-positioned to negotiate utility rate increases that keep pace with rate hikes. For the time being, SO pays a 56-cent quarterly payout that adds up to a 4.5% dividend yield at current price levels.
Big box retailer Target Corp. (TGT) has become a solid option for income-seekers. This $30 billion retail stock currently pays out a 60-cent dividend check each quarter -- that works out to a 4.35% dividend yield. After four straight quarters of the same payout, Target looks ready to give investors a raise.
It may seem as if Target's status as a dividend stock has come from out of nowhere, but the company earned that fat yield the hard way: by losing the battle to push its share price higher. In fact, Target's shares are almost 33% lower today than they were a year ago. But after a stretch of prolonged underperformance, shares could be ready to turn around.
Target is one of the biggest retail chains in the U.S., with 1,792 stores spread coast-to-coast. While competition remains extremely challenging in the big-box retail space, Target is working to remind consumers of its unique selling proposition -- in other words, it's highlighting the ways it's different from its bigger rivals. One of those differentiators is private labels; Target currently sells around 20% of its merchandise under private label, a stat that gives the firm quality control and deeper margins on a material chunk of its overall products. That, and initiatives like its loyalty program and the analytics generated by that loyalty, should continue to pay off in 2017.
Target's dividend is a message from management that the firm is more valuable than Wall Street is giving it credit for. Another rate hike would amplify that message.
Last on our list of potential dividend hikers is $23.6 billion truck manufacturer Paccar Inc. (PCAR) . Paccar is one of the biggest truck builders in the world, selling vehicles under the Peterbilt, Kenworth, and DAF names through a network of approximately 2,000 independent dealers. The firm has some important tailwinds as fuel prices slowly make their way higher from their early 2016 lows.
Paccar's brand positioning is a critical piece of its success. The firm's brands have a reputation for quality, which is particularly important in commercial trucking, where operators live and die by uptime stats. Between growing demand for freight services and an aging global truck fleet threatening uptime, Paccar is starting to see and upswing in truck and parts orders. At the same time, higher fuel prices incentivize operators to upgrade to newer, more efficient trucks, especially while interest rates remain low.
In the meantime, Paccar currently pays out a 24-cent quarterly dividend check, on top of regular special dividend payouts, that works out to a 1.4% yield at current price levels. Look for PCAR to raise that dividend check in the next month or so.