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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.
Here's why dividend growth is a hugely important, yet consistently overlooked, factor in profiting in the best and easiest way this year.
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 exchange-traded funds take even more notice.
There are two factors that contribute to a company's ability to generate 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.
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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. (Nasdaq: 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%.
About the Author
Shah Gilani is the Event Trading Specialist for Money Map Press. In Zenith Trading Circle Shah reveals the worst companies in the markets - right from his coveted Bankruptcy Almanac - and how readers can trade them over and over again for huge gains. He also writes our most talked-about publication, Wall Street Insights & Indictments, where he reveals how Wall Street's high-stakes game is really played.