Three Dividend-Paying Stocks Likely to Increase Payout

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One reason investors are scared silly over fiscal cliff 2013 is the potential tax hike that will affect investing in dividend-paying stocks.

If Congress doesn't act the rate on dividends will revert to the ordinary income rate, which tops out at 39.6%, after it was lowered to 15% during the George W. Bush administration.

"It's a foregone conclusion the rates are going up — it's just a matter of how high they go," Todd Lowenstein, a money manager with HighMark Capital Management Inc. told Bloomberg News.

But history shows dumping dividend-paying stocks because of higher tax rates is a losing game.

Even if tax rates go up, investors will fatten their wallets on companies that raise dividends because the money compounds over time, essentially paying interest on the interest.

And right now, there are plenty of good reasons for corporations to reward investors with higher payouts.

Why Dividend-Paying Stocks Will Increase Payout

Companies are sitting on $3 trillion of cash and can create badly needed goodwill by showing they're attuned to investor concerns about higher taxes, according to HighMark's Lowenstein.

Plus, if corporate tax rates climb, companies may want to increase their dividend payouts instead of paying more taxes on interest from that cash.

And it's about time, based on the miserly way companies have been treating investors.
Companies in the S&P 500 paid a paltry 27% of earnings to investors in dividends last year, according to research from Goldman Sachs Group Inc(NYSE: GS). Over the past 50 years, the payout ratio has rarely dropped below 40%.

In fact, the best companies are committed to boosting their dividends in even the worst economic times. Many of them are so predictable that you can narrow it down to the very day they'll pay dividends and, in some cases, even the size of the increase.

Three Dividend-Paying Stocks Likely to Pay More

Here are three companies with long track records that will almost certainly raise their dividends in the near future:

The Boeing Co. (NYSE: BA)
Dividend Yield: 2.45%
Payout Ratio: 30%
Projected Dividend Raise: 9.1%

Boeing is poised to reward investors with its largest dividend increase since the financial crisis.

The quarterly payout may jump from 44 cents to 48 cents a share, the most for Boeing since a 14% jump in December 2007, according to data compiled by Bloomberg.

The huge dividend increase may entice investors to pounce as Boeing emerges from long delays surrounding the launch of its 787 Dreamliner.

The 787, the first jetliner built chiefly of composite materials, was delivered to its initial customer in 2011, more than three years late.

Boeing is sitting on $11 billion in cash and a fat order backlog of $307 billion.
Chief Financial Officer Gregory Smith said Nov. 13 that buybacks are "a big priority" and that Boeing is studying its dividend.

Investors who want to get in ahead of the payout should look for Boeing to raise its dividend in December, two months ahead of schedule.

T. Rowe Price Group Inc. (Nasdaq: TROW)
Dividend Yield: 2.14%
Payout Ratio: 42.3%
Projected Dividend Raise: 9.68%
Buoyed by a market rally in 2012, TROW's assets under management — and its fees — grew substantially in 2012.

TROW is proof that brand matters in the mutual fund business. Nearly 80% of TROW's funds have outperformed the rest of the industry over the last decade.

This is a dividend juggernaut that has raised its dividend for 102 consecutive quarters, more than 25 years.

After averaging a 16% dividend growth rate over the last five years, and with $1.235 billion in cash on hand, the company is ready to boost its dividend again.

TROW bought back $429 million of its shares in 2012 and paid out $317.9 million in dividends. It has $332 million in receivables and zero accounts payable.

And get this, the company carries no long-term debt.

You can bet that when the next quarterly payment rolls around on March 13, TROW will once again be lining investors' pockets with a larger payout than its current 34-cent quarterly dividend.

Abbott Laboratories (NYSE: ABT)
Dividend Yield: 3.11%
Payout Ratio: 48.0%
Projected Dividend Raise: 6.25%
ABT keeps handing out reliable dividend increases like clockwork. Annual dividend increases have averaged a juicy 8.8% over the last twelve years.

ABT marked its 40th-consecutive year of dividend increases in February 2012, raising the company's annual dividend by 6% to $2.04 per share.

For long-term investors, the rate of increase holds promise for sizable long-term income.

But not only does ABT offer compelling value for income investors, it also delivers capital gains as well.

Investors in ABT have raked in significant gains, with shares up 13.7% this year.

The stock has plunged by 12% over the past month and a half, setting up what could be an excellent buying opportunity.

ABT is also sitting on a boatload of cash, with $7 billion on its current balance sheet.

That should be enough to make income investors circle Jan. 11, 2013 on their calendars, when ABT is expected to make its next dividend announcement.

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