While dividend growth among U.S. corporations will slow in 2018, it is still expected to be robust, Barron's reports. Based on research by IHS Markit, Barron's suggests that investors consider six companies in particular. Here they are, with their dividend yields as of January 12, their 2017 total returns (dividends included), and the dates on which they are expected to announce increases, per Barron's:

  • Charles Schwab Corp. (SCHW): 0.6% yield; 29% 2017 return; Jan. 25
  • Valero Energy Corp. (VLO): 2.9% yield; 38% 2017 return; Jan. 26
  • NextEra Energy Inc. (NEE): 2.6% yield; 31% 2017 return; Feb. 9
  • Allstate Corp. (ALL): 1.5% yield; 40% 2017 return; Feb. 12
  • Cisco Systems Inc. (CSCO): 2.9% yield; 33% 2017 return; Feb. 15
  • The Home Depot Inc. (HD): 1.8% yield, 44% 2017 return; Feb.22

Great Expectations

IHS Markit shared with Barron's their projections of dividend increases to be announced by these companies in the near future. These anticipated increases are, stated in dollars per share paid quarterly:

  • Schwab: up 25% from 8 cents to 10 cents
  • Valero: up 14% from 70 cents to 80 cents
  • NextEra: up 12% from 98.25 cents to $1.10
  • Cisco: up 10% from 29 cents to 32 cents
  • Home Depot: up 15% from 89 cents to $1.02

No forecast was offered for Allstate, but IHS Markit indicated to Barron's that the company has been increasing dividends by about 10% annually in recent years. Moreover, the company has a low payout ratio, only 27% in its 2016 fiscal year, and spends heavily on share repurchases, indicating adequate headroom for dividend hikes. (For more, see also: 3 Top Dividend Stocks for 2018.)

With Home Depot, the company paid out 43% in the fiscal year that ended in January 2017, well below its stated target of 55%, Barron's notes. Cisco was sitting on a pile of cash and short-term investments equal to about $72 billion as of October, per Markit, which adds that free cash flow is expected to grow. NextEra, a Florida-based electric utility, is expected EPS to grow by 8.9% for full year 2017, to $6.74, per Barron's.

Oil refiner Valero also is the midst of strong EPS growth, from $3.72 in 2016 to a projected $4.94 in 2017 (+33%) to an estimated $6.58 in 2018 (+33%), per FactSet Research Systems data cited by Barron's. Markit adds that Valero increased dividends at an average annual clip of 36% during the past four years, and also has high outlays for share repurchases.

The Big Picture

Overall, U.S. companies raised dividends by 8.7% from 2016 to 2017, and the increase for 2018 is projected to be 7.7% by Markit, as reported by Barron's. About twice as many companies are expected to slow their dividend growth compared to those that are anticipated to accelerate theirs. Meanwhile, per the same sources, these industry sectors are likely to post above average dividend increases in 2018 on a year-over-year basis: mining and basic resources, +31%; banks, +16%; chemicals, +15%; technology, +10%; and oil and gas, +10%.

The dividend yield on the S&P 500 Index (SPX) was about 1.73% as of January 12, per multpl.com. This lags the 10-year U.S. Treasury Note, which closed January 12 at a yield of 2.55%, per CNBC. However, as Barron's observes, the coupon rates on most bonds are fixed, but dividends may be increased, helping the investor to keep up with inflation. (For more, see also: How Inflation Threatens Your Stock Gains in 2018.)

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