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BALTIMORE (Stockpickr) -- Dividend stocks are your crash protection plan. Don't believe me? Look at the data: Over the last five years, the difference between the S&P 500's performance with dividends and without was nearly double.
The big index is up 14.08% over the last five years -- including the crash -- but it's up 27.26% when dividends are included in the returns. That's a material difference.
In the last 12 months alone, dividends have accounted for a 289 basis point boost to the S&P's already impressive performance numbers. That's another material difference in a very short time period.
And dividends are on the rise right now. Since this time last year, S&P 500 components have raised their payouts by 12.7%. With corporate cash and profitability both at all-time highs, that trend is unlikely to change anytime soon. One of the best ways do boost your own returns in 2013 is to step in front of the next round of dividend hikes; to do that, we'll take a look at our "crystal ball."
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.
Up first is Walt Disney (DIS), a firm that's synonymous with entertainment. Disney's vast catalog of brands and characters includes some of the world's most beloved names, from Mickey Mouse and Winnie the Pooh to Buzz Lightyear. And now the firm looks well-positioned for a dividend hike.
At present, DIS pays out a 75-cent annual dividend for a 1.13% yield. I'd expect a hike announcement late this year.
While Disney is best known for its children's content, one of its biggest cash cows is actually cable sports network ESPN, which makes up the biggest chunk of its TV profits. ESPN is the most valuable network on TV, measured by the affiliate fees that providers are willing to pay to carry the channel. While it's not a cheap business to run (ESPN pays the NFL $1.8 billion annually to carry Monday Night Football, for instance), it is a lucrative one. And acquisitions such as Pixar have played out well for Disney. As kids' film preferences change, the firm is keeping up with content that's rich and marketable.
Theme parks have been a mixed bag for Disney in the last half-decade. While parks throw off cash when times are good, they've been a drag on earnings post-recession. As green sprouts start to buoy the economy, Disney's parks should become a more attractive high-moat business again. DIS has paid out 57 straight dividend increases to investors; I don't think they'll break the streak in 2013.
If you're in search of investment income, it's hard to go wrong with Altria Group (MO). The $75 billion "sin stock" boasts a hefty 4.73% dividend yield right now. Altria has paid out a 44-cent dividend for the past four quarters, and that payout looks likely to get a boost in the near-term.
Altria owns an impressive stable of tobacco and alcohol brands. The firm's biggest name is Marlboro, the country's most popular cigarette brand, with a 42% share of the total U.S. market. There's little question that MO is dying a slow death; smoking is losing popularity domestically, and the firm spun off its international business all the way back in 2008. But the sticky remaining customer base and massive cash generation abilities help to offset the detractors. As Altria shifts its portfolio to more attractive businesses (such as alcohol and smokeless tobacco), it should shake off concerns over its staying power.
Another of Altria's most attractive assets is its 27% stake in SABMiller (SBMRY), the second-largest beer brewer in the world. Alcohol, particularly the beer and wine segment, has been enjoying upticks in consumption and pricing in recent years, and investors shouldn't forget about Altria's exposure to the industry. In the meantime, MO's free cash flow generation should keep the dividends rolling in for investors in 2013.
Illinois Tool Works
Illinois Tool Works (ITW) has mostly kept pace with the market in 2013, but most of the $31 billion stock's performance has come around in the last month. In the last 30 days, ITW has outperformed the broad market by a factor of more than two. Now its dividend payout looks primed to outperform as well. ITW currently pays out a 38-cent quarterly dividend that makes up a 2.17% yield at current levels.
And like MO, Illinois Tool has paid out its 38-cent check for the last four quarters. It's due for a hike.
ITW is a hugely diversified industrial equipment maker. The firm has more than 800 individual units in 58 countries, spanning everything from food and beverage equipment to auto parts to commercial construction. Because the firm employs a decentralized management model, each of those individual units is given enough rope to hang itself -- and the nimbleness to react to changing market conditions. The results speak for themselves: ITW has generated consistent double-digit earnings growth and net margins over the years.
Acquisitions have been a critical part of ITW's growth strategy -- and part of the reason why it has such a massive number of individual units under the corporate umbrella. Because the acquisitions tend to be smaller tuck-ins, no single buy target has a major impact on ITW's balance sheet. That's a good thing for the firm's ability to keep hiking its dividend. Shareholder yield is a high priority at this firm.
Fast food chain Yum! Brands (YUM) owns a handful of popular fast food concepts, including KFC, Taco Bell and Pizza Hut. While a certain restaurant firm with golden arches outsizes Yum! in terms of sales, Yum!'s scale is unrivaled in terms of locations: the firm has more than 37,000 stores in 120 countries. And now the firm looks ready to hike its 35.5-cent dividend payout.
YUM may play second fiddle in the fast food market here at home, but the firm is at the top of the pack over in China. Yum was first U.S. fast food chain to find success in China, bringing its popular American brands over to the People's Republic. Since then, it's also added local concepts such as East Dawning and Little Sheep Hot Pot to its brand portfolio -- the latter has even spread its wings across the pond with a handful of locations spreading in the U.S. and Canada. That ownership position in a supremely attractive market should keep paying off for investors.
Here at home, improved market has helped boost the Taco Bell brand thanks to novel offerings like the Doritos Locos Tacos. While a single menu item isn't exactly a game changer for YUM right now, the increased brand awareness is helping to reinvigorate a brand that's been stagnant. If the firm can replicate that success at KFC and Pizza Hut, the impact will be material.
Agricultural commodity processor Archer-Daniels Midland (ADM) has enjoyed some stellar stock performance of its own this year; dhares of the $24 billion stock have rallied more than 24% since the first trading session in January. The firm currently pays out a 19-cent dividend each quarter.
ADM takes raw soft commodities such as oilseed and wheat as inputs and spits out processed products such as vegetable oil to flour on the other side. That means that ADM is about as tied-in to global agricultural commodity prices as a company can get. One of ADM's biggest advantages is its network. The firm has more than 300 locations spread across the world, providing reach that enables ADM to take advantage of arbitrage opportunities and minimize its input costs. Scale means a great deal for ADM.
Because of that scale, for instance, ADM can assert some pricing power over its suppliers, even though many of the goods it deals in are commoditized. Make no mistake -- ADM's status as the middleman between farmers and food companies guarantees that profit margins are extremely thin, but the firm makes up for that limitation in volume. Extremely high barriers to entry mean that the parties on either side of the transaction can't easily (or cheaply) usurp Archer-Daniels Midland either, a big advantage.
ADM's dividend works out to a 2.22% dividend yield at current price levels. Investors should look for a bump to that payout 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.
-- 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. Follow Jonas on Twitter @JonasElmerraji