Dividends may appear to be boring, but their significance in a portfolio should not be underestimated. They account for a large portion of equity returns on a historical basis and can provide a stable source of cash flow that exceeds the rate on bonds or savings accounts. Many companies are also increasing their dividend payments.
A new milestone for dividends was reached last year. In 2013, the world’s largest publicly traded companies paid out more than $1 trillion in dividends for the first time in history, according to Henderson Global Investors. Overall payouts rose $310 billion since 2009 to reach $1.03 trillion. The United Kingdom accounted for 11 percent of the dividends, while the rest of Europe returned nearly $200 billion to investors. The United States was the largest source of dividend income by far — payouts surged 49 percent over five years to reach $301.9 billion.
Despite the record high in outlays, dividend payments actually contracted on a year-over-year basis in the final three months of 2013. This was due to special payments paid in the prior year and a stronger U.S. dollar that reduced the translated value of dividends in 2013. However, there are some companies that are starting 2014 on a strong note. Let’s take a look at three American dividend payers that recently raised their cash returns to investors.
1. Qualcomm (NASDAQ:QCOM)
Dividend Yield: 1.8 percent
With headquarters in San Diego, California, Qualcomm is a world leader in 3G, 4G, and next-generation wireless technologies. For more than 25 years, Qualcomm ideas and inventions have driven the evolution of digital communications, linking people everywhere more closely to information, entertainment, and each other. The company has more than 170 global office locations.
Earlier this month, Qualcomm’s Board of Directors approved a quarterly dividend of 42 cents per share, up 20 percent from 35 cents per share. Furthermore, Qualcomm increased its share repurchase program by $5 billion, bringing the total to $7.8 billion.
“Consistent with our commitment of returning capital to our stockholders, we are pleased to increase our quarterly cash dividend and stock repurchase authorization,” said Paul E. Jacobs, chairman and Qualcomm CEO, in a press release. “Our business continues to generate strong operating cash flows driven by the global adoption of our advanced technologies, including 3G and 4G, enabling us to continue to invest in our strategic growth opportunities, while also returning capital to stockholders. Since these programs began in 2003, we have returned more than $28 billion to stockholders through a combination of stock repurchases and cash dividends.”
2. Home Depot (NYSE:HD)
Dividend Yield: 2.4 percent
Home Depot is the world’s largest home improvement retailer by market capitalization. The company has received a lift from the housing recovery in recent years. Sales for fiscal year 2013 gained 5.4 percent to $78.8 billion, while total comparable store sales jumped 6.8 percent. Last month, Home Depot also announced an impressive dividend hike.
The board of directors declared a 21 percent increase in Home Depot’s quarterly dividend to 47 cents per share. “As a testament to our commitment to create value for our shareholders, the board increased the dividend for the fifth time in as many years,” said Frank Blake, the company’s chairman and chief executive officer, in a press release. “Increasing the dividend reflects our continued strategy to target a dividend payout ratio of 50 percent.” Home Depot has now paid a quarterly dividend for 108 consecutive quarters.
At the end of the fourth quarter, the company operated a total of 2,263 retail stores in all 50 states, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, ten Canadian provinces, and Mexico.
3. PepsiCo (NYSE:PEP)
Dividend Yield: 2.8 percent
PepsiCo is a global food and beverage leader with net revenues of more than $65 billion and a product portfolio that includes twenty-two brands that generate more than $1 billion each in annual retail sales. Beside soft drinks, PepsiCo is home to other well-known brands like Tropicana, Gatorade, Frito-Lay, and Quaker.
In February, PepsiCo raised its quarterly dividend 6 percent, to nearly 57 cents per share. While the increase is not in the double digits like some companies, PepsiCo has a long track record. In fact, the company has paid consecutive quarterly dividends since 1965 and has hiked its annual dividend for forty-one consecutive years.
“Our financial targets for 2014 are consistent with our long-term goals. As a reflection of our positive outlook for the business and our expectation for consistent, strong cash flow generation, we intend to increase our cash returns to shareholders in 2014 to $8.7 billion through both higher dividends and share repurchases,” said PepsiCo CEO Indra Nooyi in a press release. Since the start of 2002, PepsiCo has returned more than $61 billion to shareholders in the form of dividends and share repurchases.
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