Many investors take dividends seriously, and for good reason. Dividends have historically accounted for a huge percentage of the stock market’s total returns over the past several decades. Income investors closely follow their company’s dividend announcements.
It’s not difficult to understand why. While earnings can be managed from one quarter to the next, there’s no faking dividend payments. A company can’t keep up a dividend for long without the supporting fundamentals. Furthermore, companies that increase their dividends are signaling optimism about their futures.
That’s why it’s so important to monitor fluctuations in a company’s shareholder payout. To that end, these stocks are ripe for dividend increases in the very near future. Savvy investors should consider scooping up shares of these great stocks before their dividend increases make the news.
Fatter payouts on the horizon?
There’s perhaps no more famous dividend stock than Altria Group Inc (NYSE:MO), the purveyor of Marlboro cigarettes, among other brands.
According to noted economist Jeremy Siegel, Altria, formerly Philip Morris, was the top performing stock from 1925 to 2003.
Altria Group Inc (NYSE:MO)’s hefty payout is a major reason for its fantastic performance. In fact, Altria has increased its dividend 46 times in the last 43 years, and investors are about to receive another pay raise. That’s because Altria Group Inc (NYSE:MO)’s traditional dividend bumps come in September, meaning the company is due for a dividend raise in short order.
Altria management has pegged its dividend at 80% of adjusted earnings going forward. For the full year, Altria Group Inc (NYSE:MO) expects adjusted diluted EPS to fall between $2.36 per share to $2.41 per share, representing 7% to 9% growth versus 2012.
That means that, assuming Altria Group Inc (NYSE:MO) hits at least $2.36 in per-share adjusted EPS, 80% of that would represent a dividend of roughly $1.88 per share. As a result, investors can reasonably expect a 7% dividend increase in the fall.
Another stock certain to pay its investors more in a matter of weeks is aerospace and defense giant United Technologies Corporation (NYSE:UTX). The Dow Jones Industrial Average component has seen success across its business segments, including Pratt & Whitney and Otis, which makes me particularly optimistic about the magnitude of the company’s imminent dividend increase.
Consider that United Technologies Corporation (NYSE:UTX) generated $16 billion in sales in the second quarter, which represented 16% growth year over year. Earnings per share rose 5% versus the same period last year. Along with the results, management upped its earnings expectations for the full year. United Technologies Corporation (NYSE:UTX) now expects at least $6.00 in per-share profits this year.
Judging by the company’s strong performance to start the year as well as its recent track record of payout raises, there’s enough precedent to assume a double-digit payout increase is in the offing.
Investors should take note that United Technologies Corporation (NYSE:UTX) traditionally raises its payout every five quarters instead of the usual four. The company’s fifth static dividend payment has recently been declared, so it’s the next quarterly payout that should be increased.
Last but not least, electronics retailer Best Buy Co., Inc. (NYSE:BBY) is due for a dividend increase. Best Buy Co., Inc. (NYSE:BBY)’s struggles have been well-publicized, from its struggles with the ‘show-rooming’ effect to its failed attempt to be taken private.
Best Buy Co., Inc. (NYSE:BBY)’s sales and profits have declined in recent periods, as evidenced by the company’s 1% drop in fiscal 2013 revenue, but one thing that has kept climbing higher is the company’s dividend.
Best Buy Co., Inc. (NYSE:BBY) has raised its dividend in time for its September payout in each of the last three years. Last fall, Best Buy gave its investors a 6% pay raise.
That’s because despite the retailer’s struggles, Best Buy Co., Inc. (NYSE:BBY) continues to churn out solid free cash flow. As a result, it’s prudent for investors to expect another one cent per-share dividend increase, which would represent a nearly 6% raise.
The window into a company’s soul
Dividends are, quite simply, one of the purest views into the health of any company. Management expectations for the future are imbedded into dividend changes. A company that raises (or cuts) its shareholder distribution is sending a clear signal to investors about the likely health (or struggles) of its business over the coming months.
That’s why investors should pay attention to each of these stocks over the next few weeks. Each is due to increase its dividend as they have this time of year for many years in a row. Investors of each of these companies will be given a fairly straightforward view of overall business conditions at Altria Group Inc (NYSE:MO), United Technologies Corporation (NYSE:UTX), and Best Buy.
Assuming each company delivers solid dividend increases, investors should feel good about their future prospects. Pay close attention to what happens to these stocks’ distributions, and don’t hesitate to base your decision to buy or not based in large part on what happens to their dividends.
Robert Ciura owns shares of Altria Group. The Motley Fool has no position in any of the stocks mentioned. Robert is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Why You Should Consider Buying These Stocks Before Their Imminent Dividend Increases originally appeared on Fool.com is written by Robert Ciura.
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