Companies in the S&P 500 Index (SPX) are projected to increase their dividends by as much as 8% in the aggregate during 2018, according to separate analyses by Goldman Sachs Group Inc. (GS) and S&P Dow Jones Indices, as reported by Barron's. "But if you add in the potential for tax [reform] and stronger growth, you do get the possibility of a double-digit number," as Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, told Barron's.

Sam Stovall, chief investment strategist at independent research firm CFRA, concurs. "There's definitely upside potential [for dividends] in terms of companies increasing their payout ratio, provided they feel a little more assured about economic expansion and earnings improvements, possibly from a tax cut," as he indicated to Barron's. Meanwhile, one study concludes that a basket of stocks with the highest yields has delivered market-beating performance over the long term. (For more, see also: 5 Dividend Stocks for Bull and Bear Markets.)

Stocks With Dividend Upside

David Katz, chief investment officer at Matrix Asset Advisors Inc., suggests that investors should look for "conservative, higher-yielding, low-volatility stocks" in 2018, as quoted by Barron's. In particular, he expects the passage of tax reform to boost payouts. Seven stocks that he recommends, with their year-to-date net price moves through December 15 and current dividend yields, per Barron's:

  • Coca-Cola Co. (KO), +11% gain, 3.2% yield
  • General Mills Inc. (GIS), -8% loss, 3.45% yield
  • Schlumberger Ltd. (SLB), -26%, 3.22%
  • Gilead Sciences Inc. (GILD), +6%, 2.75%
  • Cisco Systems Inc. (CSCO), +26%, 3.04%
  • AT&T Inc. (T), -10%, 5.13%
  • Royal Dutch Shell PLC (RDS.A), +14%, 5.68%

By contrast, the estimated yield for the S&P 500 as a whole, per Goldman's estimates as reported by Barron's, is 2.2% in 2017, 2.0% in 2018, 1.9% in 2019, and 1.9% in 2020. Goldman expects annual dividend growth for the S&P 500 to slow to 4% in 2019 and 3% in 2020.

Drilling for Dividends

Katz indicated to Barron's that big energy companies have made great progress in lowering their breakeven points on a cash flow basis. This makes energy a good place for investors to hunt for high dividend yields, in his opinion, but he cautions that you should be "discerning." (For more, see also: 5 'Safe' Dividend Stocks in the Energy Patch.)