Receiving monthly dividends from your portfolio is always appreciated. What is even better, is to pick stocks that have the greatest potential to increase their dividend in the upcoming years.
What I really like about investing is that it’s like a continuing game of chess. The problem is that you are dicing with multiple players and numerous events that are out of your control. The recent numbers on the US economic situation provoked a wave of optimism from investors. While the effects of the previous recession continue to linger, we are still under the impression that the worst is behind us. In order to continue to push toward the same direction, President Obama announced another round of stimulus projects by giving a $100G in tax credit incentives for companies.
US stock markets have produced terrible yields for the past decade but I think that the trend shouldn’t last for another 10 years. As I mentioned in one of my previous posts, there are a lot of companies trading at a very low P/E ratios. Combined with a great dividend yield, these companies are a great buying opportunity.
I think we are currently right in the middle of an amazing time to buy several dividend paying stocks. Why? Simply because US corporations are sitting on a huge amount of liquidity. What can be better for cash rich companies than a dividend increase?
In fact, US companies have $1,800G of cash! Some will use this money to buy back their shares, others will invest it to purchase other companies (HP vs Dell trying to buy 3PAR, Couche-Tard’s bid on Casey’s and BHP Billiton’s bid on Potash), some corporations will invest in R&D and finally, some of them will increase their dividend.
I discussed this briefly with my dividend sector analysis for 2010 Q3, and several US corporations are expected to increase their dividend. Among them, here are my top 10 lists of stocks that should raise their dividend in the upcoming quarters:
Corporation Name Sector Ticker Current Dividend Yield
Procter & Gamble Consumer, Non-Cyclical PG 3.20%
PepsiCo Inc Consumer, Non-Cyclical PEP 2.93%
Philip Morris International Consumer, Non-Cyclical PM 4.29%
Microsoft Technology MSFT 2.14%
Intel Technology INTC 3.40%
American Water Works Utilities AWK 3.77%
Connecticut Water Utilities CTWS 3.89%
National Bankshares Financial NKSH 3.65%
Allicance Financial Corp Financial ALNC 3.78%
Illinois Tool Works Industrial ITW 3.02%
What I like about these companies is their ability to maintain even steadily increase their dividend while having higher profits than their competitors.
A dividend increase means a lot of things for investors. While they receive a higher payout on a quarterly basis, it gives them more flexibility to use this extra money to adjust, perhaps rebalance their portfolio over time.
What is really interesting is that companies increasing their dividend will also offer investors greater chances to keep their stock value at the same level. And at best, they have the opportunity to earn capital gains if the market leaves fixed income products such as bonds to go towards high paying dividend stocks.
A stock that continues to increase its dividend also offers to produce a significant dividend yield if you are patient enough. Just think about the dividend yield you would have if you have bought JNJ 15 years ago?
Do you have any other dividend increasers on your target list?