Stock Quotes in this Article: ADP, EMR, KO, T, WYNN

BALTIMORE (Stockpickr) -- Who cares about dividends? With the S&P 500 in rally mode this fall, it's easy to ignore the cash payouts that companies are offering up to investors right now. After all, dividends only matter in tough markets, not markets where you can make capital gains hand over fist, right?

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Even in 2013, dividend investing is paying off in a big way. While the S&P 500's year-to-date capital gains have weighed in at a lofty 23.6% as of this writing, the payout-centric S&P 500 Dividend Aristocrats Index has generated total returns of 27.3% over that same period. That's pretty material outperformance.

And that's not all. Over the last three and a half decades, dividend stocks have outperformed the rest of the S&P 500 by 2.5% annually, and they outperformed nonpayers by nearly 8% every year, all while paying out cash to their shareholders, based on data compiled by Ned Davis Research. The numbers are even more compelling when looking at companies that consistently increase their payouts.

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To take advantage of that trend today, we're focusing on dividend stocks that look ready to hike their payouts. 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, 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.

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


First up is telco giant AT&T (T). To be clear, AT&T's likelihood of a dividend hike doesn't mean that the communications giant is lacking in its payout; the firm has been the highest-yielding Dow Jones Industrial Average component for quite a while now. But nevertheless, the firm looks likely to boost its 5% dividend yield in the near-term.

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AT&T is one of the biggest communications firms in the world, with nearly than 95 million wireless customers, 30 million landline customers and 16 million internet subscribers. That huge installed base gives AT&T some big advantages when it comes to selling bundled services to its existing customer Rolodex, and those in turn help fuel double-digit net margins on AT&T's income statement. Top rival Verizon (VZ) made a big move when it bought the rest of its mobile phone arm, but it overpaid big time in the process. That makes AT&T look like the more attractive telco giant by far right now.

A strong history of rewarding shareholders means that AT&T uses most of its free cash generation for dividends and stock repurchases. From a technical standpoint, this stock is just starting to look attractive again after a downtrend from April to the middle of this month. That fundamental and technical overlap makes now a good time to be a buyer.

AT&T has paid out a 45-cent dividend for the last four straight quarters; a hike is in the cards.


A quick glance at Coca-Cola's (KO) chart bears a lot of resemblance with AT&T's. Both blue chip names have been correcting for the last few months, only to bounce higher in the last few weeks. That's not the only similarity between these two stocks, of course; Coke is another name that looks primed for a dividend hike.

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Coca-Cola is the largest beverage company in the world. Coke's products make up an astounding 3% of the 55 billion beverages served worldwide each day, a feat that's accomplished through a distribution network that reaches more than 200 countries. Shifting global consumer trends are providing big growth opportunities for KO, as difficult as that may be to believe given the firms jaw-dropping scale. But as buyers in emerging markets slowly shift their soft drink and bottled water consumption in like with the developed markets, KO expects it'll nearly double its sales by 2020.

From a financial standpoint, Coke is in stellar shape. Despite major bottler acquisitions, the firm has remained nearly debt-neutral, leaving plenty of dry powder to hike its 28-cent-per-share dividend payout. Keep an eye on this name. After four straight quarters, KO looks ready give investors a raise on their 2.8% yield.

Emerson Electric

Industrial firm Emerson Electric (EMR) is another blue-chip name that's gone four straight quarters without showing shareholders a dividend raise, but that could change next week, when the firm reveals its quarterly results to Wall Street. Right now, EMR pays out a 41-cent quarterly dividend that adds up to a 2.45% yield.

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Emerson Electric owns a diverse portfolio of businesses, manufacturing electric motors, valves and switches, air conditioning compressors and tools. Yes, that positioning gives EMR hefty exposure to the cyclical industrial sector, but industrials have really been working in 2013 thanks to a combination of boosted economic activity and interest rates that continue to simmer near zero. One of EMR's biggest growth engines is overseas. Big recent 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.

Like the other names on this list, Emerson has consistently prioritized shareholder returns: historically, the firm has paid out around 80% of free cash for dividends and share buybacks. As the firm's fundamentals continue to improve, so too should EMR's payouts.

Automatic Data Processing

Even though jobs growth has been slow for the economy in the last five years, it hasn't slowed down the pace of HR administrator Automatic Data Processing (ADP). ADP provides services such as payroll processing, tax remittances and benefits administration to more than 600,000 businesses that don't want to (or can't) deal with them in-house.

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ADP's bread and butter has long been payroll services, but in recent years this low interest rate environment has been a major challenge to the old way of doing business; since ADP earns interest on the float from payroll cash deposited by clients, higher rates means higher revenues. But the firm has combatted that by focusing on leveraging its huge customer Rolodex to sell add-on services to existing accounts. Those efforts have helped prevent ADP from the worst downside risk on its income statement, and that change means that ADP's earnings power is multiplied when higher rates come back into the picture.

Right now, ADP has a spotless balance sheet, with an immaterial amount of debt offset by $2 billion in cash and investments. ADP's coffers aren't the biggest out there, but they're plenty big to support future dividend hikes. And ADP looks due for one near-term.

The firm's 43.5-cent quarterly dividend adds up to a 2.3% yield – but investors should watch out for a hike next month.

Wynn Resorts

2013 has been a stellar year for casino operator Wynn Resorts (WYNN). The Las Vegas icon has rallied more than 47% since the calendar flipped over to January, giving investors nearly double the S&P 500's performance over that same time period. And while it might be easy to ignore WYNN's 2.4% dividend yield amid that much capital appreciation, it would be a mistake.

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Wynn has some attractive positioning on the luxury end of the casino resort spectrum. And while most American gamblers equate Wynn with the firm's two flagship resorts in Las Vegas, the firm's real cash cow is halfway across the world. Today, around 70% of the firm's revenues actually come from Macau, the high-end Chinese gambling district. Macau is Wynn's crown jewel in large part because the firm is one of the few that's been granted a gaming license from the government. Wynn has two properties in Macau, with a third on the way.

And like the other big names on this list, Wynn has a history of treating shareholders well. That may have something to do with Steve Wynn, the firm's founder and CEO, who own around 9% of WYNN's shares. Previous payouts included a $7.50 special dividend last year that upped the firm's yield to 6.5%. While another special dividend isn't in the cards, I think a hike from the current $1 quarterly dividend looks likely in the next quarter.

To see these stocks in action, check out the Rocket Stocks portfolio at Stockpickr.

-- Written by Jonas Elmerraji in Baltimore.


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

Jonas Elmerraji, CMT, is a senior market analyst at Agora Financial in Baltimore and a contributor to

TheStreet. Before that, he managed a portfolio of stocks for an investment advisory returned 15% in 2008. He has been featured in Forbes , Investor's Business Daily, and on Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.

Follow Jonas on Twitter @JonasElmerraji