When it comes to corporate tax cuts and repatriated cash from overseas, a lot has been written about how much will go into share buybacks. But not enough has been said about dividend growth.
Investors need to look past buyback schemes and look to which companies are increasing their dividends from tax cuts and repatriation – especially investors who like a steady income.
Dividend growers will be the big, long-term winners in the tax cut and repatriation game.
The Two Factors That Spell “PROFITS”
While some workers will benefit from higher wages and some companies will see their stocks rise from buyback programs (both of which are byproducts of tax cuts), those two things don’t always work out in the long run for shareholders.
Rising wages can eventually cut into margins, but there’s never a guarantee that cash spent on share buybacks won’t be totally wasted.
A good example of this would be General Electric Co. (NYSE:GE), on both counts.
But regular dividend increases by a company always benefits shareholders. They see more money in their pockets on a regular basis.
When dividends are increased, individual investors take notice – and so do institutions. Dividend-based mutual funds and ETFs take even more notice.
There are two factors that contribute to a company’s ability to generate a solid, steady earnings growth and a rising stock price: greater dividend growth and a history of consistent dividend increases.
The combination of steadily rising dividend payments and an appreciating stock price is what investors thrive on.
Companies with a solid history of dividend increases over long periods – which mutual fund houses and rating companies tag with names like “dividend achievers” and “dividend aristocrats” – are trying to get the attention of investors and fund companies. And they’re succeeding.
Companies Are Lining Up to Announce Dividend Increases
United Parcel Service Inc. (NYSE:UPS), Air Products and Chemicals Inc. (NYSE:APD), Aflac Inc. (NYSE:AFL), and PepsiCo Inc. (NasdaqGS:PEP) have all announced double-digit dividend increases since the tax cuts were enacted, averaging 10%.
Mastercard Inc. (NYSE:MA) raised its dividend by a whopping 25%.
As of the end of February the weighted average of announced dividend increases, year over year, is 9.25%.
That’s on top of a good 2017, which saw average increases of 7.4%.
Analysts estimate that we’ll see an average of 10.4% increase in dividend payouts through the first half of the year.
The second half of the year could be better if the economy grows and corporate profits keep ticking higher at the double-digit earnings growth rate they enjoyed the past two quarters.
While tax cuts and repatriation will help most companies deliver better earnings and greater cash flows, the biggest long-term winners – those who already pay dividends – will likely be dividend payers in the industrial, materials, and consumer discretionary sectors.
Those sectors will continue to benefit from an expanding economy, which will get a nice boost from corporate and personal tax cuts, strong global growth, and the President’s infrastructure rebuilding plans.
Besides the companies mentioned, who’ve already announced dividend increases and are all good buys for the long-term, there will be more dividend increases and more buying opportunities for investors who prefer to sleep soundly at night.
It would be negligent if I didn’t share the wealth of knowledge that my colleague and friend also has on this topic. Chief Investment Strategist for Money Map Press, Keith Fitz-Gerald, has revealed an opportunity to get in on what he’s been calling “Tax-Cut Cash Piles.”
This deeper dive highlights the opportunities you may be missing out on, which could be providing you a second stream of income. With trillions of dollars anticipated in dividend returns, how could you not want to learn how to benefit from this?
Click here for more information on this and more. You don’t want to miss this.
I’ll be following up regularly here on who is hiking their dividend payouts and which stocks you should load up on for the long, long run.