The 8 Greatest Dividend Gains For 2011 (AWK, CSCO, XOM, FDX, GE, HPQ, JPM, WMT)

Corporation are now sitting on billions and billions of dollars in their corporate treasuries.  They are keeping their share prices higher by returning capital to shareholders.  Most are certainly not hiring large numbers of workers. Companies began reinstating their dividends or raising their dividends in 2010.

Have you noticed how the Dow Jones industrial average is back at 12,000 again?  That is due to the dividend hikes, and more are on the way.

Close to one-third of long-term investor gains should come from dividends if you follow classic investing philosophy.  Dividends are now more popular than ever as investors seek out a steady flow of money as a hedge against the volatile stock markets.

Here are the eight greatest dividend increases you may see in 2011:

1. American Water Works Company, Inc. (NYSE: AWK) This has been a dividend growth stock in 2010 and that should easily continue in 2011 and the years beyond.  The current $0.88 annualized payout compares to earnings expectations for 2010 of $1.52 EPS and $1.62 EPS for 2011.  The dividend hike is not likely to be seen before the summer of 2011.  The current $0.22 quarterly payout is likely to rise up to $0.23 or $0.235 this year.  At $25.89, this one seems to hit new 52-week highs each week and it unfortunately has rarely given many great pullbacks for new investors to jump in at a bargain price.

2. Cisco Systems, Inc. (NASDAQ: CSCO) is almost certain to begin paying a dividend this year.  CEO John Chambers finally capitulated in 2010 for the calls to begin paying one.  It is very possible that the announcement could come around the upcoming quarterly earnings report due in February.

The indicated range was for a dividend yield of 1% to 2%.  Cisco generally prefers to buy back its stock to “return capital”which has done nothing in the last decade for the stock.  A recent $10 billion buyback plan was on top of what had  been $72 billion in share buyback authorizations.  It had spent a whopping $67.5 billion of that solely on share buybacks.  The only help is that it offset employee and acquisition stock option conversions in stock and the dilution that would have caused.

3. Exxon Mobil Corporation (NYSE: XOM) should be paying shareholders more than it is considering that it is America’s largest oil giant.  The company acquired XTO to expand its natural gas portfolio and it continues to repurchase stock by the billions.  The XTO acquisition was all in stock, so the company still has more than $45 billion between its cash and its long-term investment portfolio.

Exxon’s two most recent dividend hikes were only by two-cents per quarter.  The current $0.44 dividend comes to $1.56 per year, which generates a yield for new investors of 1.95%.  It is odd that oil companies are not larger dividend sources considering just how profitable they are.  Its third quarter sales were over $95 billion alone and it listed operating income of $12.9 billion with net income of $7.35 billion. The next Exxon dividend hike may not come before the second quarter as it has only has three quarters of the $0.44 payout.

4. FedEx Corporation (NYSE: FDX) may lag rival UPS by far, but most consider FedEx the go-to shipping carrier for rush items and overnight mail.  Amazingly, FedEx lags greatly in its dividend yield compared to United Parcel Service or UPS.  The wild card is that FedEx has had labor issues over unionization and possible higher compensation costs.  This  may be the single largest factor in the FedEx dividend decision, but at some point FedEx has to normalize this payout discrepancy.

FedEx has great growth opportunities as globalization continues, but this low dividend has been one of the single largest turn-offs to new investors who want income on top of capital gains. The company had raised its dividend by only a penny each year, but then came the recession and it kept its dividend at $0.11 per quarter for two years.  The company has now had three quarters of a $0.12 quarterly payout and that generates a paltry yield of only 0.50% versus a 2.6% dividend for UPS nvestors.  Founding CEO Fred Smith is going to realize that the dividend is embarrassingly low and needs to be doubled.

5. General Electric Co. (NYSE: GE) will be the dividend surprise that few expect this early in 2011.  The giant conglomerate boosted its dividend in 2010 twice, and the second dividend hike was a complete surprise.  The continued improvement of GE’s financial operations and its core businesses will be boosted with at least one round of cash from Comcast in the NBC Universal deal.

GE has started repurchasing shares of its common stock again and the company is trying to normalize its dividend yield for all of its long-term shareholders.  After all, the great recession took away half to three-quarters of GE’s market value.  Shares are now above $20.00 and as its stock rises, so will its dividend. CEO Jeff Immelt said he is the happiest with the GE portfolio as he has ever been.

The precise timing is most likely after the company repays Berkshire Hathaway for its preferred investment during the recession.  GE’s current $0.14 quarterly payout generates a dividend yield of 2.8% for new investors and the current run rate before the stock’s rise was above 3%.  At current prices, the next dividend hike will likely jump to $0.15 or $0.16 per quarter.  That generate $0.60 to $0.64 in annual payouts, still well short of GE’s estimates from Thomson Reuters of $1.31 EPS for 2011.

6. Hewlett-Packard Co. (NYSE: HPQ) is the No.1 PC company that expanded into IT services since it acquired EDS.  That is meant to insulate against the consumer spending habits.  The company is a Dow Jones Industrial Average component, but its $0.08 per quarter dividend brings a yield of a nearly embarrassing 0.7% to investors.

After Mark Hurd was ousted as CEO, the company has been in disarray.   Wall Street is not impressed by Hurd’s successor, Leo Apotheker, and the most recent shakeup of its board of directors is causing investors even more stress. Somehow, it has been able to maintain a positive guidance for the year ahead.  At $46.74, its shares are still well under the pre-CEO ouster level and its 52-week range is $37.32 to $54.75.

HP has to now worry about Cisco Systems in its data center sector and it is going to have to rekindle shareholder interest.  The way it can do that is with a very long overdue dividend hike. The dividend has been $0.08 for years now and the $0.32 annualized payout compares to Thomson Reuters estimates of $5.24 EPS for 2011.  In an effort to regain shareholder interest, HP’s board needs to raise that dividend by 100% to $0.16 per quarter or $0.64 per year.

7. J.P. Morgan Chase & Co. (NYSE: JPM) is going to be the biggest bank dividend story of 2011.  CEO Jamie Dimon has telegraphed that he wants to get back closer to a normalized dividend as soon as the new government stress tests are behind it and as soon as the government allows it to resume paying dividends.  This is the healthiest of the money-center banks and too-big-to-fail banks and will be one of the first banks to begin returning capital to shareholders.

The current 0.4% dividend yield is generated by a tiny payout of $0.05 per quarter, and that is a tiny fraction of the pre-recession and pre-TARP level of the old $0.38 per quarter dividend.  The new payout will not jump to its old rate, but it is likely that the first move will jump to as high as $0.20 per quarter or $0.80 per year.  That would get the yield closer to 2.0% as a start, and there will likely be a promise for more payouts ahead as regulatory pressure becomes less prevalent.

Thomson Reuters estimates of $4.72 EPS for 2011 earnings and that affords much more than enough dividend coverage ahead for many more raised dividends in the future.  There are two more issues, with the first being some loose discussions that Jamie Dimon may announce a buyback for up to 10% of its outstanding shares.  The second bit of good news is that this prediction of a $0.20 dividend may prove to be extremely conservative.

8. Wal-Mart Stores, Inc. (NYSE: WMT) is the king of retail and was supposed to be the king of the recession.  Retailers generally do not have high payouts, but its 2.2% dividend yield is actually higher than what other giant retailers give their shareholders.  The $1.21 annualized dividend generates one of the lower Dow Jones Industrial Average components in yield.

Wal-Mart has also been a nearly dead stock for an entire decade.  As with most share buybacks, that effort has done little to reward holders.  The company now has $200 billion in market value a higher dividend would offer much more reward than trying to shrink its share count.  The added benefit is that a Wal-Mart dividend hike would actually put pressure on its competitors and force them to raise their dividends rather than to invest in their own growth.

Wal-Mart’s last dividend hike was announced in early-March of 2010, and the timing seems to be the same for 2011.  A boost to $0.35 per quarter would be a nice hike compared to its $0.3025 payout of today and would bring the yield up to 2.5%. The new $1.40 paid out for a year would compare to its 2011 earnings estimate of $4.45 EPS.  How much more cap-ex does Wal-Mart need for the U.S.?  If Wal-Mart ever wants its stock to get back above $60.00 and stay there, it will have to entice more new share buyers.  A nice dividend is its best hope of achieving that.

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Jon C. Ogg