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5 Dividend Stocks Set to Give Shareholders a Raise - views
BALTIMORE (Stockpickr) -- Watch Your Step, Please: Fiscal Cliff.
That's the warning sign getting waved over Wall Street this week, now that the election is over and investors needing something new to worry about. The fiscal cliff's combination of tax hikes and government spending cuts harkens back to the debt ceiling crisis we saw at the end of last year -- it's just the opposite problem. Instead of making the Treasury default on U.S. debt, the combination of bigger tax burdens and lower services threatens to push us into a depression.
Like the debt ceiling, the clock is ticking on the fiscal cliff too: America sticks one leg over the edge on January 1.
Luckily, there is a light at the end of the tunnel here -- Congress is always willing to cut taxes and increase government spending, so lawmakers should be able to reach across the aisle this time to put up a fiscal guardrail. I'm only half joking. In the meantime, there are a couple of outcomes that look likely as the fiscal cliff approaches; continued anxiety over stocks and continued high prices for treasuries.
Those factors are stacking the deck against dividend-paying stocks at the exact same time that investors should be looking for yield. But we don't want to chase yield, we want to step in front of it. That's why today, we'll focus finding likely dividend hikes for 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.
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 late-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.
Aerospace giant Boeing (BA) is having a great week, never mind the fact that shares are off a couple of percentage points since the market started dropping on Tuesday -- after all, BA saw its 787 book its first flight in revenue service this week.
After long delays and economic potholes, the launch of the 787 into passenger service is a huge relief for the investors who've been waiting for Boeing to meet milestones. That's because with efficiency that's around 20% better than other aircraft in the class, the 787 has the potential to greatly impact the fortunes of profit-challenged airlines.
Airliners are only half of Boeing's business, though. The only half comes from the defense industry, where Boeing manufactures aircraft like the KC-46A refueling tanker used by the U.S. Air Force. While defense spending has some big black clouds over it, the mission-critical nature of BA's contracts should help make them last to see the axe. And the fact that only 19% of Boeing's backlog comes from defense helps to spread the risk away from the firm's current valuation.
Financially, Boeing is cruising in calm air. Aircraft manufacturing isn't a cheap business to enter, but BA has relatively little leverage on its balance sheet and a huge $11.2 billion cash and investment position that should ensure that the firm has more than enough liquidity to take on any unexpected speed bumps along the way. With 787 backlog finally getting converted into revenues, the firm looks well positioned for a dividend hike. Currently Boeing's 44-cent payout equates to a 2.48% yield.
Las Vegas Sands
Don't let the name fool you -- Vegas has become a small part of the business being brought in at Las Vegas Sands (LVS). Today, the casino operator generates close to 85% of its revenues in Asia, at big-ticket locales like Macau, Singapore, and Cotai. Strong gambling performance overseas should help to fuel a dividend hike in the next quarter for LVS -- currently, the firm pays out a 25-cent quarterly dividend. That's a 2.34% yield at current price levels.
LVS owns the Sands, Venetian, and Palazzo names, as well as a Four Seasons franchise in Macau, laying claim to a handful of the most successful casino resort brands in the gaming industry. Macau is really the crown jewel of LVS' operations -- and its tight regulation helps ensure that competition is limited to the few firms that can grab one of just six licenses to operate casinos in China. LVS owns two of them.
While the gaming industry took a big hit in the aftermath of the Great Recession, huge spending in Macau has more than made up for the shortfall back in Vegas. Now, as Las Vegas starts to show a more meaningful recovery, LVS should be able to secure some impressive profitability in 2013. That paves the way for a dividend hike in the next quarter.
It's been a tough year for gold bugs. As the price of everyone's favorite precious metal meandered sideways, gold miners have taken a huge hit, with Newmont Mining (NEM) down almost 20% so far this year. That shouldn't stop Newmont from offering investors a dividend hike in the next quarter.
Newmont weighs in as the second-largest gold producer in the world. The firm owns around 99 million ounces of proven and probable gold reserves, and pulled close to 6 million ounces out of the ground last year alone. For dividend investors, especially those who want diversification from the dollar, Newmont is a strong choice.
Last year, Newmont announced that it would start linking its dividend payout to the price of gold, a move that makes a lot of sense. Since many of Newmont's investors buy shares because they want exposure to gold as a currency, indexing the dividend to gold prices makes shares much more attractive, even if the dividends are paid in dollars. Because Newmont's profitability is extremely sensitive to gold prices, a gold-linked dividend also means that Newmont's dividend obligations shrink when gold prices do.
Many investors seem to be forgetting the fact that gold is still at historic highs right now. Even though Newmont isn't the league leader in low-cost gold production, it's still able to make substantial profits from $1740 gold. As central bank moves like QE3 stand to devalue the dollar, gold should regain its shine in 2013. Meanwhile, the gold rally of the past few months puts Newmont on track to post a dividend hike.
T. Rowe Price
Baltimore-based asset manager T. Rowe Price (TROW) is posting decent performance this year, buoyed by an equity rally in 2012 that's helped to grow TROW's assets under management -- and its fees. Now, with stellar profitability and ample cash on hand, the company looks well positioned to post a bigger dividend for investors in the next quarter. Right now, T. Rowe pays a 34-cent quarterly payout for a 2.14% yield.
For full disclosure, I like T. Rowe Price -- my first job was at the investment firm. Then and now, T. Rowe Price is evidence that brand matters in the asset management business. In an industry where investors are rightfully suspicious of their investment managers, T. Rowe prides itself on being a good steward for its clients. Managers use conservative strategies, even when exciting trends are spurring reactions at rivals. That means that T. Rowe Price tends to lag fad rallies, but it also means that the firm was able to protect customer money much better than most peers during the Great Recession.
T. Rowe Price's approach has won out in the long-term -- close to 80% of funds are outperforming the rest of the industry over the last decade. As anxious investors give more money to TROW, the firm's fee generation should continue to grow faster than the industry. Just as importantly, outsized exposure to equities means that the firm should benefit disproportionately if this stock rally continues in 2013.
McGraw-Hill Companies (MHP) is another stock that looks primed to boost its dividend payout. The $14 billion publishing firm currently pays a 25.5-cent quarterly dividend to investors, but that number should increase in the next quarter as MHP slowly recovers from the recession. Right now, McGraw-Hill's payout adds up to a 2% yield.
MHP isn't a conventional publisher. Instead, its focus is in providing higher-value content and research through subsidiaries like J.D. Power and Associates, Standard & Poor's, and its namesake educational publishing arm. MHP's focus on trade and education means that higher costs go into creating products, but it also means that the firm can demand bigger prices for its trouble. That's helped to ensure that net margins come in at around 15%, versus tenuous profitability for conventional publishing companies.
That's not to say that MHP hasn't been subject to some scrutiny. Like other ratings agencies, Standard & Poor's took a lot of heat for its role in the credit crisis, and then it took even more heat last year when it downgraded U.S. debt. While that scrutiny has largely blown over, the firm will need to put more eyes on how its heavily regulated ratings arm makes decisions if it wants to keep a lucrative business operating smoothly. Despite a couple of detractors, this stock has a net cash position for the first time in a while, and it looks well positioned for a dividend hike in the next quarter.
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.
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 CNBC.com. Jonas holds a degree in financial economics from UMBC and the Chartered Market Technician designation.