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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 boasts a financial pedigree unlike any other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When options on the Standard & Poor's 100 began trading on March 11, 1983, Shah worked in "the pit" as a market maker.
The work he did laid the foundation for what would later become the VIX - to this day one of the most widely used indicators worldwide. After leaving Chicago to run the futures and options division of the British banking giant Lloyd's TSB, Shah moved up to Roosevelt & Cross Inc., an old-line New York boutique firm. There he originated and ran a packaged fixed-income trading desk, and established that company's "listed" and OTC trading desks.
Shah founded a second hedge fund in 1999, which he ran until 2003.
Shah's vast network of contacts includes the biggest players on Wall Street and in international finance. These contacts give him the real story - when others only get what the investment banks want them to see.
Today, as editor of Hyperdrive Portfolio, Shah presents his legion of subscribers with massive profit opportunities that result from paradigm shifts in the way we work, play, and live.
Shah is a frequent guest on CNBC, Forbes, and MarketWatch, and you can catch him every week on Fox Business's Varney & Co.