Stock Quotes in this Article: ABC, COV, ECL, EMN, EMR

  BALTIMORE (Stockpickr) -- When it comes to dividend stocks, bigger is generally better.

Bigger dividend payouts and bigger companies mean two things: heftier income and more stable payouts. That’s especially true right now, when market conditions are anything but favorable for folks who are trying to earn income from their portfolios.

Right now, we’re seeing a convergence of factors working against investors. For starters, retail investors are fleeing from equities en masse. In the last year, more than $170 billion has come out of equity mutual funds, instead making its way over to less risky (and less rewarding) bond funds at a time when interest rates are scraping against the bottom of historic lows.

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And let me remind you that the companies that make up the S&P 500 have more cash than ever before, have higher profits than ever before, and pay a bigger dividend yield than they have in the last two decades.

Clearly, something’s off.

So today, we’re scouring the stock market for a new group of big-name stocks that look ready to hike their dividend payouts in the coming quarter. In other words, these five firms are getting ready to boost dividends; they just don't know it yet.

In the past few months we’ve had some stellar success in finding future dividend hikes just by zeroing in on a few key factors. Now we’ll look at our crystal ball and try to do it again.

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For our purposes, that “crystal ball” is composed of a few factors: namely a solid balance sheet, a 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, especially as investors start to get antsy about this mid-2012 rally.

Without further ado, here’s a look at five stocks that could be about to increase their dividend payments in the next quarter.

Emerson Electric

First up is Emerson Electric (EMR), a $37 billion firm that owns a diverse portfolio of businesses, manufacturing electric motors, valves and switches, air conditioning compressors and tools. That positioning gives EMR hefty exposure to the cyclical industrial sector, a business that’s been under pressure in the last few years as demand slows for manufactured goods.

Still, Emerson has made some big strides at recovering from the Great Recession. In 2011, the firm finally eclipsed its pre-recession revenue and profit levels.

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With a massive presence in factories around the world, Emerson has turned its focus to emerging markets to seek out growth going forward. As a burgeoning middle class drives up wages in countries with major manufacturing operations, the firm’s expertise in process automation should help it to attract customers who want to keep human workers on tasks that machines can’t do. Big investments in Emerson’s power business in recent years should also help drive sales in the lucrative (and less cyclical) infrastructure projects taking place around the globe.

Emerson has a long track record of rewarding shareholders. Historically, the firm has paid out around 80% of free cash for dividends and share buybacks. The firm’s 40-cent quarterly dividend payout gives EMR a yield of 3.2% right now, but this stock has all the markings of a firm set to hike its dividend later on in 2012.

Investors looking for industrial exposure in their portfolios should consider EMR a good core income holding right now.

Covidien

So far, it’s been a solid year for shareholders of Covidien (COV). In 2012, shares of the medical device and pharmaceutical firm have rallied more than 25%, besting the broad market by a wide margin. Covidien is a leader in most of the areas that it operates in, focusing on niche medical products (like bariatric bands and instruments for minimally-invasive surgery) rather than trying to compete with the industry’s bigger names.

That’s part of the reason why COV is spinning off its pharmaceutical business right now. Pharma has been under some significant pressures in the last couple of years, as investors cringe over the loads of patent cliffs plaguing drug revenues. By spinning off pharma, Covidien can shove any discount to its share price onto a new firm. At the same time, spin offs generally unlock considerable value for shareholders. That bodes well for folks who own COV right now.

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More permissive healthcare legislation here at home bodes well for Covidien. With more patients able to pay for the types of treatments that the firm focuses on, sales should move higher in COV’s fastest growing segment (the U.S.).

COV currently pays out a 22.5-cent quarterly dividend. While only a 1.6% yield at current price levels, this stock looks capable of hiking its dividend in the next quarter.

Ecolab
 

Ecolab (ECL) built a $19 billion business on being clean. The firm is one of the biggest providers of sanitation products used by healthcare, food service, and industrial operations worldwide. The firm’s reach is one of its biggest positive attributes -- because Ecolab is the standard bearer for the industry, it’s able to capture favorable deals on reputation alone.

Sanitation is an attractive business for two reasons: it’s absolutely critical, and it’s relatively cheap. In other words, Ecolab’s customers care a whole lot more about being sanitary (and avoiding the plethora of downside attached to a dirty restaurant or hospital) than they do about the minimal costs that high-quality cleaning supplies tack onto their income statements.

ECL is yet another stock with a lot riding on revenues abroad. There’s considerable room for Ecolab to expand internationally, particularly in emerging economies, where sanitation mandates are only just starting to catch up with Ecolab’s existing markets. If the company can spend the resources on growing its sales and distribution base internationally, that investment should pay off considerably in the next several years.

The company’s 20-cent dividend marks a 1.2% yield, a payout level that’s well below ECL’s average yield on a historic basis. That leaves room for a dividend hike in 2012.

AmerisourceBergen

Pharmaceutical distributor AmerisourceBergen (ABC) is one of the biggest companies of its kind. Essentially, the firm is a middleman between pharmaceutical manufacturers and healthcare providers. By dealing with non- pharmaceutical operations -- like packaging, logistics, and inventory management -- ABC’s clients can focus on their higher-margin core businesses.

Ultimately, AmerisourceBergen operates in a scale business. The overwhelming majority of hospitals, doctors’ offices, and smaller pharmacies will never have the scale to handle their own drug distribution as efficiently as ABC can. For that reason, the firm operates in a business with big barriers to entry, even if margins aren’t particularly compelling. ABC is all about volume.

AmerisourceBergen sports a net cash position on its balance sheet, a rarity for a business with thin margins and big scale costs. That dry powder (and a consistently huge source of free cash flows) should help to boost ABC’s dividend payout in 2012. Currently, the firm offers investors a 13-cent quarterly dividend.

Eastman Chemical

In the 90-plus years since George Eastman started Eastman Chemical (EMN) to supply photo chemicals for his “main” business, Eastman has made some serious leaps and bounds over its sibling firm Eastman Kodak (EKDKQ). Today, Eastman Chemical is a major supplier of the chemicals used to make adhesives and coatings, as well as plastics and fibers. Its customers include everyone from automaker and construction firms to apparel manufacturers.

Commodities are poison to a firm such as Eastman, and management knows it. While margins have been squeezed lately by higher input commodity costs, Eastman’s size and specialization mean that the firm has been better able to pass those costs onto customers (eventually) than many of its peers can. And more importantly, the firm has unloaded any businesses that produce commoditized chemicals that are subject to stiffer competition. If Eastman doesn’t have an edge in a business, it’s not interested.

Strong diversification (along with significant geographic diversification) is a big boon to EMN -- it means that the specialty chemicals that Eastman produces don’t see sales as prone to the ebb and flow of a single industry.

That, combined with a healthy balance sheet, sets the stage for a dividend hike in 2012. Currently, EMN pays out 26 cents each quarter to investors, a 1.9% yield at current price levels.

To see these dividend plays in action, check out the at Dividend Stocks for the Week portfolio on Stockpickr.

And if you haven't already done so, join Stockpickr today to create your own dividend portfolio.

-- Written by Jonas Elmerraji in Baltimore.

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At the time of publication, author had no positions in stocks mentioned.

Jonas Elmerraji, based out of Baltimore, is the editor and portfolio manager of the Rhino Stock Report, a free investment advisory that returned 15% in 2008. He is a contributor to numerous financial outlets, including Forbes and Investopedia, and has been featured in Investor's Business Daily, in Consumer's Digest and on MSNBC.com.