It's a big mistake to forget about the dividends.
Investors are fixated on the price action in 2017. With the big S&P 500 index up almost 9% on a price basis about halfway through the year, that's no surprise.
Many investors, however, ignore dividends when market prices are moving up and to the right. But those quarterly payouts add up to a big contribution of your total returns. For instance, over the last 10 years, dividends have accounted for about 40% of the S&P 500's performance, handing investors the difference between 61.2% gains, and 99.97% 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, try to step in front of the next round of stock payout hikes.
Look for a few factors: A solid balance sheet; low payout ratio; 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.
Here's a look at three big stocks that could be set to increase their dividend payments in the coming months.
Think of it as your dividend preview.
Up first on the list is tech giant Microsoft Corp. (MSFT) . Microsoft currently pays out a 39-cent dividend check that adds up to a 2.2% yield at current price levels. But after four quarters of a constant payout, Microsoft is on schedule to announce a dividend boost this coming quarter.
Microsoft is a company in transition. While the firm's bread and butter is still the Windows operating system and Office productivity suite, cloud services have been an increasingly critical component of Microsoft's sales mix. While Azure is significantly smaller than rival Amazon.com's (AMZN) Web Services, Azure is still the second-largest public cloud vendor today, and Microsoft has been differentiating its offering with its software expertise and tight integrations with development tools.
Financially, Microsoft is in excellent shape. The firm currently boasts $49 billion in net cash and investments on its balance sheet, a big enough cash cushion to cover almost 10% of the firm's market capitalization. That pile of dry powder also gives Microsoft plenty of room to boost its dividend payout. Investors should stay tuned for a raise.
Altria Group Inc.
Dividends and tobacco stocks go hand in hand -- that's certainly the case for $141 billion cigarette stock Altria Group Inc. (MO) . Altria pays a 61-cent quarterly dividend that amounts to a 3.3% yield at current price levels. The firm's track record of regularly scheduled hikes puts Altria on track to boost its payout to investors next month.
Altria is a U.S. cigarette giant. The firm owns Marlboro, the biggest cigarette brand in the country, and it also owns cigar, pipe tobacco and smokeless tobacco products. Despite that market positioning, the cigarette industry is a declining business here in the U.S., and because Altria spun off its international operations back in 2008, growth prospects are slim. To combat that, Altria has expanded into other businesses, buying up Ste. Michelle Wine Estates as well as a massive 9.7% stake in Anheuser Busch InBev (BUD) .
Altria's slowly declining cigarette business still throws off a substantial amount of cash, a prime reason why this stock is so dividend-friendly. Altria's dividend schedule has been incredibly consistent - the firm has boosted its payout every year since 2008. That puts a high probability on a hike in August.
Verizon Communications Inc.
Last on our list of potential dividend hikers is Verizon Communications Inc. (VZ) . Verizon is a familiar name to dividend-seekers -- this income stock currently pays out a massive 5.4% yield, giving it the biggest dividend yield in the Dow Jones Industrial Average right now. And if history is any indication, that yield could be about to get even bigger, with a hike from 57.75 cents in the quarter ahead.
Verizon is the biggest cellular phone carrier in the country, with more than 113 million retail wireless connections. The firm is also the local phone company for around 25% of the U.S., providing fixed line phone, TV and internet services. Telecom is a scale-based business, and Verizon's status as the incumbent for telecom utility services -- both wireless and wired -- give it the ability to generate substantial cash despite a capital-intense business structure.
Part of the reason for Verizon's large dividend yield is the fact that shares have been correcting in 2017. But while shares could still have more downside risk ahead in the near term, a dividend boost this quarter could be the catalyst to attract buyers this fall.
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