It is that time of year when investors and consumers alike are starting to think about the end of this year and the start of next one. So far, 2015 has been a year of stock gains and givebacks, with the Dow and S&P 500 up marginally. What has worked well for investors during the greatest phase of the bull market and during the whipsaws of volatility is in the companies where assured dividend hikes are playing a role now and in the years ahead.
Income-oriented investors know that through time they get one-third to half of all of their total returns via dividends. Companies that will keep raising those dividends for years into the future are the best ways to generate income today and going forward.
24/7 Wall St. recently identified up to 10 potentially large or at least symbolic dividend hikes that would be announced before year’s end. Some of the dividend hikes we have seen were even larger than what was expected. Now that list is down to five remaining dividend hikes, but this is not an assured five hikes. Four of the stocks are almost certain to see hikes, and there are two runners-up — with a 50% chance on each making it five expected dividend hikes!
The list of dividend hikes expected between the start of December and the start of 2016 is made up of Dow Jones Industrial Average components and companies that could have been (or were previously) Dow components. AT&T Inc. (NYSE: T) is likely to bring a dividend hike, and it will make it the king of dividends among the largest telecom stocks. Boeing Co. (NYSE: BA) should deliver a dividend hike for aerospace and defense investors, and 3M Co. (NYSE: MMM) and MasterCard Inc. (NYSE: MA) both also are expected to deliver a dividend hike.
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Then there is the runner-up group of potential dividend hikes. Walt Disney Co. (NYSE: DIS) has a payment timing issue to consider, and no not over Star Wars. General Electric Co. (NYSE: GE) remains a wild card, with a dividend status that simply remains too difficult to predict.
Keep in mind that recent dividend hikes have been announced by the likes of Intel, Nike, Merck, Visa, Starbucks and more. Here are four almost assured dividend hikes, with two wild cards at a 50% chance of each making five dividend hikes expected in December.
AT&T
AT&T Inc. (NYSE: T) is still rather fresh off of acquiring DirecTV. 24/7 Wall St. believed long before the deal closed that DirecTV actually would bring stronger dividend coverage due to cash flow and income. AT&T’s third-quarter earnings report showed that its free cash flow dividend payout ratio was 57% year to date, improved from 67% in the second quarter.
The company also increased its adjusted earnings and free cash flow outlook for the year to adjusted earnings per share (EPS) in the $2.68 to $2.74 range and that free cash flow would be roughly $15 billion. The corresponding dividend hike in prior years has been in mid-December, and 2014 was AT&T’s 31st straight annual hike, with a 2.2% payout hike.
Shares of AT&T recently traded at $33.77, with a consensus analyst price target of $37.12 and a 52-week trading range of $30.97 to $36.45. The company has a dividend yield of 5.6% and a market cap of $208 billion.
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Boeing
Boeing Co. (NYSE: BA) is perhaps the king of aerospace and defense. Recent international developments are driving a new wave of defense spending, and Boeing’s most recent backlog was listed as a whopping $485 billion, with nearly 5,700 commercial airplane orders. The long and short of the matter is that Boeing has a long road of income and cash flow ahead of it. The maker of the 787 Dreamliner last hiked its dividend in mid-December 2014, up by 25%, along with a $12 billion share buyback.
Due to an expected lack of growth in EPS in 2015, it is safer to expect a more modest hike this time around. The view of 24/7 Wall St. is that Boeing will raise its payout by 5% to 10%, which will keep it from running into a 50% payout ratio. It is a must to remember that Boeing wants to buy back shares too and had spent $6 billion on that alone in 2015, as of the third quarter.
Boeing shares were recently at $147.60. The stock has a consensus price target of $162.83 and a 52-week range of $115.14 to $158.83. The market cap is about $99 billion and the dividend yield about 2.5%.
3M
3M Co. (NYSE: MMM) was a solid Dow performer from 2012 through the end of 2014. Since then its valuations became stretched and its dividend payout ratio has now gone from low to over 50%. The conglomerate last raised its dividend by 20% in mid-December of 2014.
24/7 Wall St. feels that investors should expect a more modest hike, at least unless 3M formally says it is ruling out any big cash acquisitions ahead. 3M also may need to moderate its growth in that payout ratio, as its dividend was $0.635 in 2013 and is $1.025 now. What stands out here for the big dividend bulls is that 3M was strong enough in hard times that it was still able to raise its dividend during the recession, and it has been a habitual dividend-raising machine.
3M shares were recently at $156.64. The consensus price target is $161.29. The 52-week range is $134.00 to $170.50. 3M has a market cap of more than $96 billion and a dividend yield of 2.6%.
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MasterCard
MasterCard Inc. (NYSE: MA) is likely to be an assured dividend hike, if the hike from Visa means anything. MasterCard’s payout hike was by 45% in the December 2014 announcement, but the issue for both MasterCard and Visa is that they have yielded less than 1% and they have significantly higher dividend capabilities than they are delivering.
When it comes to MasterCard, we need to consider that Visa’s recent dividend payout hike went up by 17%. MasterCard only pays out about 20% of its adjusted income per share now. It almost seems fair, or more than fair, to ask if a 20% to 25% dividend hike could be expected. Even if the credit card processing giant doubled its dividend, it still would only generate a 1.3% yield.
MasterCard shares were last seen at $97.34. The $110 billion market cap company has a dividend yield of 0.7%. The consensus price target is $111.81, and the 52-week range is $74.61 to $101.76.
And the Runners-Up
Walt Disney Co. (NYSE: DIS) would have been a guaranteed dividend hike in years past, but now we have to wait and see how Bob Iger and Disney’s board of directors handles this. Disney decided to start paying its dividend on a semi-annual basis rather than annually in 2015, and it already raised its payout by 15% in its June announcement.
Disney can easily afford a dividend hike, but the reality is that there is a chance that Iger can tell investors that the 2015 dividend hike was made in June. There are concerns about ESPN and the cost of sports packages driving more cord-cutting. Still, Star Wars, other movie titles and higher park tickets are helping growth here. It is still very possible that cord-cutter fears are being overblown, and Disney is a key part of Hulu.
Last year’s dividend hike was a 34% payout gain, preceded by a hike of 15% and a prior 25% hike. Disney’s yield seems very low, but its shares performed so well in recent years that it is an artificially low yield after shares are massively higher, up 25% in 2015, but having tripled in the prior three years. Disney remains in our list of 10 stocks to own for the next decade.
Walt Disney’s shares were trading at $114.40, with a consensus analyst price target of $119.32 and a 52-week trading range of $90.00 to $122.08. The dividend yield is 1.2%, and the market cap is $189 billion.
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General Electric Co. (NYSE: GE) is listed last here and out of alphabetical order. The reason is simple: GE remains the largest of the wild cards among other dividend wild cards. GE also remains as one of the top 10 stocks to own for the next decade.
The company just completed that Synchrony Financial exchange, and our understanding based on recent communications was that GE was skipping a dividend hike in 2015 and will resume its hikes after this year. GE also just announced a reorganization of GE Capital Corp., whereby holders of GECC preferred stock will receive GE preferred stock in an exchange.
GE also likely can get away with telling shareholders that the Synchrony spin-off acted just like a dividend hike but even better. After all, GE’s stock price finally has gone back over $30, up from under $25 at the start of October.
GE shares were last seen at $30.16. The market cap is roughly $305 billion, with a dividend yield of 3.0%. The consensus price target is $31.31, and the 52-week range is $19.37 to $30.99.
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