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5 Dividend Stocks That Want to Pay You More - views
BALTIMORE (Stockpickr) -- In case you missed it in all of the chatter over the broad market’s tightening in on new highs this month, 2013 is actually panning out to be a great year for dividend stocks.
The S&P 500’s dividend payouts are currently 4.48% higher than they were 12 months ago, tacking significant income growth onto some significant capital gain growth over the same period. And now, with record corporate profits and cash positions, firms are well positioned to keep cutting bigger dividend checks for shareholders.
Even if Warren Buffett conspicuously announced last week that Berkshire Hathaway (BRK.B) wouldn’t be adding on a dividend in 2013, there are plenty of firms that do look primed to boost payouts. 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 whether or not 2013’s rally will be able to hang on.
Without further ado, here's a look at five stocks that could be about to increase their dividend payments in the next quarter.
Enterprise software giant Oracle (ORCL) has a big problem. With close to $14 billion in net cash, Oracle is one of the many blue-chip tech names that’s got more cash than ideas right now -- and another dividend hike makes a whole lot of sense for management in 2013. Right now, Oracle pays out a 6-cent quarterly dividend for just a 0.7% yield.
Oracle is a software behemoth. The firm sells mission-critical software packages to clients that need database tools for everything from customer resource management to supply chain analysis. Because Oracle’s software is integrated so tightly into its customers’ operations, those customers have extremely high switching costs and competitors have big barriers to entry. Recent cloud computing offerings should make Oracle even more competitive against more nimble software providers in the year ahead.
The pending Acme Packet (APKT) acquisition will eat up around $1.7 billion in net cash, it still leaves management without a viable solution for the rest of the balance sheet, and a dividend boost makes a lot of sense. The decision to accelerate dividend payouts ahead of the fiscal cliff in 2012 already shows that dividend are front of mind for the firm. Investors should keep a close eye on shares in 2013 -- with their wallets open.
2013 is shaping up to be a stellar year for food and beverage giant PepsiCo (PEP). The $117 billion firm has seen its share price climb by 11% since the first trading day in January, besting the broad market’s also-impressive climb by a big margin. But investors shouldn’t forget that this dividend stock is paying out a 2.83% yield on top of any capital gains they earn this year.
PepsiCo is one of the biggest snack and drink manufacturers in the world, with popular names like Frito Lay, Quaker and Gatorade under the Pepsi umbrella. Despite its beverage-centric name, the firm earns around half of its revenues through its food units, diversification that spreads some of the risk around from its duopoly with Coca-Cola (KO). For snack and beverage firms, distribution is key. Pepsi’s distribution network is one of the biggest and most efficient in the world, a fact that makes it incredibly cheap for PEP to incrementally add new brands to customers’ store shelves.
Pepsi has scale, but it’s working on earnings growth from two angles: by boosting its sales in emerging market countries and by shaving costs off of its income statement. Both approaches should bear fruit for investors in 2013. That should translate into bigger dividend checks this year too.
Colgate-Palmolive (CL) is another potential dividend hiker in the next quarter; right now, CL pays out a 62-cent dividend for a 2% yield. The consumer goods giant owns some of the biggest household product brands in the business, from namesake Colgate and Palmolive to Softsoap, Speed Stick, and Hill’s Science Diet pet food. Those valuable consumer staple brands provide some semblance of sticky customers and pricing power for CL, income statement protection that second-tier brands can’t offer their owners.
While growth opportunities are becoming more hard-fought for typical blue chips like Colgate-Palmolive, one big expansion opportunity comes from emerging markets, where a burgeoning middle class population is looking to spend their newfound wealth on Western household brands.
Not all of CL’s units are created equal -- the firm owns around 45% of the global oral care business, an operation that’s Colgate’s crown jewel, and a major inroad into international markets that have historically made up a smaller part of sales. Oral care boasts stickier customers (store brands aren’t as easily interchangeable for brand names in this area), and it generates hefty margins. Combined with a bulletproof balance sheet and emphasis on dividend payouts, this stock looks like a strong dividend hike candidate right now.
Simon Property Group
Admittedly, mall REIT Simon Property Group (SPG) is a bit of a “gimme” when it comes to dividend hikes. The $50 billion real estate investment trust is effectively an income-generation machine -- it’s legally obligated to pay out the vast majority of its income directly to shareholders in the form of dividends. That means that as long as SPG continues to see its profits grow, so too will its dividend. Management doesn’t have discretion over its payout.
Simon owns 245 million square feet of leasable space, a portfolio that makes the company the biggest real estate investment trust in the world. Because the firm’s main properties are malls, it also gets a cut of tenant sales, a fact that gives this particular REIT considerable exposure to consumer spending.
The landlord business is capital-intense; it’s costly, after all, to build new mall projects. But even so, Simon has managed to maintain an attractive balance sheet with a manageable debt load. That should keep Simon’s shareholder payouts on the rise in 2013. At last count, the firm’s $1.15 dividend works out to a 2.88% yield.
Capital One Financial
Capital One Financial (COF) has made some transformative moves in the last few years. During the Great Recession, the firm bought banks with both hands, picking up enough assets to become the country’s number-seven bank by deposits. Those huge deposits, in turn, provide a cheap source of funding for COF’s legacy business: lending money.
As one of the biggest credit card issuers, COF is able to translate its deposits into high-rate loans. With interest rates still sitting atop historic lows, the spreads that this firm is able to earn right now are impressive. That’s why 70% of COF’s profits come from the consumer lending business right now. Capital One has spent considerable resources on advertising, and as a result, it’s established its brand as one of the most well-known lenders in the country. The firm’s unique card offerings should keep consumers opening new cards, especially as Americans shake off their post-recession aversion to using credit.
While Capital One has been in growth mode for the last few years, it’s now entering the phase where it can start to focus on turning its pricey acquisitions into returns for shareholders. Right now, Capital One pays out a 5-cent dividend, but with a strong balance sheet and net margins in the double-digits, this stock should be able to afford a dividend hike for shareholders in the near-term.
To see these dividend plays in action, check out the at Dividend Stocks for the Week portfolio on Stockpickr.
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-- Written by Jonas Elmerraji in Baltimore.
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.