Congress and President Donald Trump passed a historic tax cut late last year, lowering the corporate tax rate from 35% to 21%. This monumental legislation should place hundreds of billions of dollars back in the hands of corporations. But which companies will put these dollars in the hands of investors as dividend increases?
Some companies will use the money saved — or repatriated from overseas — to reinvest in their businesses. Comcast Corporation (NASDAQ:CMCSA), for example, will invest $50 billion into infrastructure in the coming years.
Other companies will use the money to repurchase stock. Regrettably, those stocks are very overvalued right now.
Many companies, however, will boost their dividends to reward shareholders. This will be particularly true of companies that are already cash flow positive and are struggling to grow or would struggle anyway just given their business.
Here are seven likely candidates for dividend increases.
Dividend Increases: Apple (AAPL) investorplace.com/wp-content/uploads/2016/05/aaplmsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/05/aaplmsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/05/aaplmsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/05/aaplmsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/05/aaplmsn-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/05/aaplmsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2016/05/aaplmsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/05/aaplmsn-78×43.jpg 78w, investorplace.com/wp-content/uploads/2016/05/aaplmsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” /> Source: via Apple
Apple Inc. (NASDAQ:AAPL) will be one of the big winners in the tax cut game. For starters, it should be able to repatriate about $215 billion. It will also save about $2.2 billion in taxes. Now, Apple not only will have all that cash on hand, it also has free cash flow in excess of $50 billion.
What’s interesting about AAPL stock is the yield is only 1.49%, based on a $2.52 per share dividend. Apple could literally afford to plow the entire tax savings into an increased dividend — boosting it by $0.44 per share — to $2.96 per share or 1.72%.
Dividend Increases: Home Depot (HD) investorplace.com/wp-content/uploads/2016/05/hdmsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/05/hdmsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/05/hdmsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/05/hdmsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/05/hdmsn-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/05/hdmsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2016/05/hdmsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/05/hdmsn-78×43.jpg 78w, investorplace.com/wp-content/uploads/2016/05/hdmsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” /> Source: Mike Mozart via Flickr (Modified)
Home Depot Inc (NYSE:HD) is another huge winner in the corporate tax cut parade. HD will save close to $675 million annually.
The beauty of Home Depot is that the company is currently firing on all cylinders. They’re seeing fabulous same-store comps. And their current dividend payout is presently a mere 40% of free cash flow.
Home Depot can and should plow their entire tax savings into a dividend increase of $0.65 per share, lifting the dividend from $3.56 to $4.21 per share. That would push the yield from 1.88% to 2.22%.
Dividend Increases: Pfizer (PFE) investorplace.com/wp-content/uploads/2017/10/pfemsn-300×150.jpg 300w, investorplace.com/wp-content/uploads/2017/10/pfemsn-768×384.jpg 768w, investorplace.com/wp-content/uploads/2017/10/pfemsn-60×30.jpg 60w, investorplace.com/wp-content/uploads/2017/10/pfemsn-200×100.jpg 200w, investorplace.com/wp-content/uploads/2017/10/pfemsn-400×200.jpg 400w, investorplace.com/wp-content/uploads/2017/10/pfemsn-116×58.jpg 116w, investorplace.com/wp-content/uploads/2017/10/pfemsn-100×50.jpg 100w, investorplace.com/wp-content/uploads/2017/10/pfemsn-78×39.jpg 78w, investorplace.com/wp-content/uploads/2017/10/pfemsn-800×400.jpg 800w,https://investorplace.com/wp-content/uploads/2017/10/pfemsn-170×85.jpg 170w” sizes=”(max-width: 950px) 100vw, 950px” /> Source: Shutterstock
Pfizer Inc. (NYSE:PFE) stands to save about $150 million annually. As a big pharma company, Pfizer must continually feed its R&D machine. R&D routinely costs about $7.5 – $8.5 billion annually, yet that money comes out of its extremely robust free cash flow which runs $13 – 16 billion annually.
Figure a $.025 dividend increase on top of its already annual increase, which results in a small increase in yield from 3.75% to 3.77%. Not big, but a lot of retirement investors hold PFE stock.
Dividend Increases: Cisco (CSCO) investorplace.com/wp-content/uploads/2017/05/cscomsn-300×165.jpg 300w, investorplace.com/wp-content/uploads/2017/05/cscomsn-55×30.jpg 55w, investorplace.com/wp-content/uploads/2017/05/cscomsn-200×110.jpg 200w, investorplace.com/wp-content/uploads/2017/05/cscomsn-162×88.jpg 162w, investorplace.com/wp-content/uploads/2017/05/cscomsn-400×220.jpg 400w, investorplace.com/wp-content/uploads/2017/05/cscomsn-116×64.jpg 116w, investorplace.com/wp-content/uploads/2017/05/cscomsn-100×55.jpg 100w, investorplace.com/wp-content/uploads/2017/05/cscomsn-91×50.jpg 91w, investorplace.com/wp-content/uploads/2017/05/cscomsn-78×43.jpg 78w,https://investorplace.com/wp-content/uploads/2017/05/cscomsn-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” /> Source: Shutterstock
Cisco Systems, Inc. (NASDAQ:CSCO) has fallen into no/slow-growth territory with net income effectively stalling over the past couple of years. Nevertheless, CSCO stock generates about $13 billion annually in free cash flow. That’s pretty amazing, so the additional $350 million in tax savings would likely all go to increasing the dividend.
The $.07 per share increase would push the dividend from $1.16 per share to $1.23 per share, lifting the yield from 3.03% to 3.14%.
Dividend Increases: Coca-Cola (KO) investorplace.com/wp-content/uploads/2016/06/komsn2-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/06/komsn2-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/06/komsn2-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/06/komsn2-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/06/komsn2-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/06/komsn2-100×55.jpg 100w, investorplace.com/wp-content/uploads/2016/06/komsn2-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/06/komsn2-78×43.jpg 78w, investorplace.com/wp-content/uploads/2016/06/komsn2-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” /> Source: Leo Hidalgo via Flickr (Modified)
The Coca-Cola Co (NYSE:KO) has really been struggling the past few years. The world moved away from sugary drinks and toward healthier choices. Revenue is falling, as is net income.
Nevertheless, KO stock has enjoyed bountiful cash flow for decades and has almost $40 billion of cash on hand. So while business is struggling, much of the $220 million in tax savings may go to either stock repurchases or dividend increases.
If the latter, that means a $0.05 per share increase to $1.53 per share, boosting the yield from 3.23% to 3.36%.
Dividend Increases: Microsoft (MSFT) investorplace.com/wp-content/uploads/2016/03/MSFTMSN-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/03/MSFTMSN-73×40.jpg 73w, investorplace.com/wp-content/uploads/2016/03/MSFTMSN-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/03/MSFTMSN-250×137.jpg 250w, investorplace.com/wp-content/uploads/2016/03/MSFTMSN-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/03/MSFTMSN-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/03/MSFTMSN-160×88.jpg 160w, investorplace.com/wp-content/uploads/2016/03/MSFTMSN-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/03/MSFTMSN-100×55.jpg 100w,https://investorplace.com/wp-content/uploads/2016/03/MSFTMSN-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/03/MSFTMSN-78×43.jpg 78w, investorplace.com/wp-content/uploads/2016/03/MSFTMSN-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” /> Source: Mike Mozart Via Flickr
Microsoft Corporation (NASDAQ:MSFT) will win big with the tax cut as well. Because Microsoft is finally growing earnings again, but has tons of cash and cash flow, there is no need to plow the tax savings into the business.
MSFT can also start to make big strides towards becoming an income stock. Get this — before the cut, MSFT generated $30 billion in free cash flow last year, and paid out only $11.8 billion in dividends.
Tax savings could push another $0.04 per share into the dividend, lifting it to $1.72 per share.
Dividend Increases: Boeing (BA) investorplace.com/wp-content/uploads/2016/04/bamsn-1-300×165.jpg 300w, investorplace.com/wp-content/uploads/2016/04/bamsn-1-73×40.jpg 73w, investorplace.com/wp-content/uploads/2016/04/bamsn-1-55×30.jpg 55w, investorplace.com/wp-content/uploads/2016/04/bamsn-1-250×137.jpg 250w, investorplace.com/wp-content/uploads/2016/04/bamsn-1-200×110.jpg 200w, investorplace.com/wp-content/uploads/2016/04/bamsn-1-162×88.jpg 162w, investorplace.com/wp-content/uploads/2016/04/bamsn-1-160×88.jpg 160w, investorplace.com/wp-content/uploads/2016/04/bamsn-1-65×36.jpg 65w, investorplace.com/wp-content/uploads/2016/04/bamsn-1-100×55.jpg 100w,https://investorplace.com/wp-content/uploads/2016/04/bamsn-1-91×50.jpg 91w, investorplace.com/wp-content/uploads/2016/04/bamsn-1-78×43.jpg 78w, investorplace.com/wp-content/uploads/2016/04/bamsn-1-170×93.jpg 170w” sizes=”(max-width: 728px) 100vw, 728px” /> Source: Phillip Capper via Flickr
Boeing Co (NYSE:BA) is another widely-held stock that’s in a sweet-spot as far as how to use its tax windfall. They aren’t saving an enormous chunk of money — about $93 million — but that still translates to a $0.16 per share dividend increase.
That would push the dividend right up to $7 per share, lifting the yield from 2.32% to 2.34%.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 1,800 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.