8 Companies Likely to Issue "Tax Cut" Dividend Increases in 2018

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8 Companies Likely to Issue Tax Cut Dividend IncreasesPresident Trump and Congress passed the first major tax legislation in the last 30 years at the end of 2017. The legislation cut the corporate tax rate from 35% to 21%, created a new deduction for pass-through businesses and lowered tax rates for every bracket. This once-in-a-generation legislation should place hundreds of billions of dollars back in the pockets of corporations, but which companies will return these dollars to investors in the form of increased dividends?

Some companies will use the money they save in taxes or the money they repatriate overseas to reinvest in their businesses. For example, Comcast (NASDAQ:CMCSA) has announced it will be reinvesting $50 billion into its infrastructure over the next several years because of the new tax policy. Other companies may use the money to repurchase stock, but companies likely to repurchase shares over raising their dividends tend to be growth companies that are significant overvalued in the present market.

There will however be a number of companies that will boost their dividends to reward shareholders. Companies that already have strong cash flow and don't have great reinvestment opportunities to grow their businesses will be the most likely to raise their dividends.

Let's review some of the companies most likely to raise their dividends because of the tax reform act.

#1 - Apple, Inc. (NASDAQ:AAPL)

Apple logoApple (NASDAQ: AAPL) will be one of the biggest corporate winners as a result of tax reform. The iPhone maker should be able to repatriate about $215 billion in overseas profit to the United States. It will also save about $2.2 billion in taxes it would have otherwise paid. Not only will Apple have all that additional cash on h and, it also has free cash flow of more than $50 billion each year.

What's especially interesting about Apple's stock is that it is currently only yielding about 1.5%, based on its annual dividend per share of $2.52. Apple could actually afford to return its entire tax savings to investors in the form of an increased dividend, boosting it by $0.44 per share and raising their dividend yield to about 1.725%.

About Apple
Apple Inc. (Apple) designs, manufactures and markets mobile communication and media devices, personal computers, and portable digital music players, and a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The Company's products and services include iPhone, iPad, Mac, iPod, Apple TV, a portfolio of consumer and professional software applications, the iOS and OS X operating systems, iCloud, and a variety of accessory, service and support offerings. The Company also delivers digital content and applications through the iTunes Store, App StoreSM, iBookstoreSM, and Mac App Store. The Company distributes its products worldwide through its retail stores, online stores, and direct sales force, as well as through third-party cellular network carriers, wholesalers, retailers, and value-added resellers. In February 2012, the Company acquired app-search engine Chomp.

Current Price: $175.30
Consensus Rating: Buy
Ratings Breakdown: 30 Buy Ratings, 15 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $202.51 (15.5% Upside)

#2 - Cisco Systems (NASDAQ:CSCO)

Cisco Systems logoCisco Systems (NASDAQ: CSCO) has unfortunately fallen into a period of very slow growth with net income stalling during the last couple of years. However, CSCO generates about $13 billion annually in free cash flow which is impressive for any publicly traded company. 

Cisco expects to save $350 million annually in taxes, which could be funneled toward its dividend to keep its shares attractive to stock investors. Cisco also has a massive amount of cash sitting overseas -- $68 billion at lat count. If Cisco were to put all of its tax savings towards its dividend, it would increase its dividend by $0.07 per share, resulting in a new $1.23 annual dividend. This would raise its dividend from 3.03% to 3.14%.

About Cisco Systems
Cisco Systems, Inc. designs and sells a range of products, provides services and delivers integrated solutions to develop and connect networks around the world. The Company operates through three geographic segments: Americas; Europe, the Middle East and Africa (EMEA), and Asia Pacific, Japan and China (APJC). The Company groups its products and technologies into various categories, such as Switching; Next-Generation Network (NGN) Routing; Collaboration; Data Center; Wireless; Service Provider Video; Security, and Other Products. In addition to its product offerings, the Company provides a range of service offerings, including technical support services and advanced services. The Company delivers its technology and services to its customers as solutions for their priorities, including cloud, video, mobility, security, collaboration and analytics. The Company serves customers, including businesses of all sizes, public institutions, governments and service providers.

Current Price: $44.27
Consensus Rating: Buy
Ratings Breakdown: 22 Buy Ratings, 10 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $44.14 (-0.3% Upside)

#3 - Home Depot (NYSE:HD)

Home Depot logoHome Depot (NYSE:HD) will be another major winner in the corporate tax cut game. The company anticipates that it will save about $675 million in corporate taxes. 

Home Depot is especially likely to raise their dividend because the company has had incredibly strong sales and earnings growth over the last few years. With more than $100 billion in revenue in 2017 and earnings per share of more than $7.00, the building supplies retailer is firing on all cylinders. Plus, their current dividend payment represents only 40% of free cash flow and strong dividend payers often pay up to 75% of their free cash flow in dividends.

Home Depot could funnel their entire tax savings into a dividend increase of $0.65 per share, lifting their annual dividend from $3.56 to $4.21 per share. This would increase their dividend yield from 1.88% to 2.22% overnight.

About Home Depot
The Home Depot, Inc. (The Home Depot) is a home improvement retailer. The Company sells an assortment of building materials, home improvement products, and lawn and garden products, and provides various services. The Home Depot stores serves three primary customer groups: do-it-yourself (DIY) customers, do-it-for-me (DIFM) customers and professional customers. Its DIY customers are home owners purchasing products and completing their own projects and installations. The Company assists these customers with specific product and installation questions both in its stores and through online resources and other media designed to provide product and project knowledge. Its DIFM customers are home owners purchasing materials themselves and hiring third parties to complete the project or installation. Professional Customers are primarily professional renovators/remodelers, general contractors, repairmen, installers, small business owners and tradesmen.

Current Price: $177.10
Consensus Rating: Buy
Ratings Breakdown: 21 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $194.02 (9.6% Upside)

#4 - Microsoft (NASDAQ:MSFT)

Microsoft logoMicrosoft (NASDAQ:MSFT) will be a major winner from the tax cut. The company is finally growing its earnings and profit with the strength of its cloud computing business. The company also has tons of cash on hand and strong cash flow, presenting no major need to invest its tax savings back into the business.

Microsoft has also made a big effort toward becoming an attractive income stock in the last several years. In 2017, the company generated more than $30 billion in free-cash flow and paid out $11.8 billion in dividends. The company's tax savings could add $0.04 per share to the company's dividend, raising it to $1.72 per share.

About Microsoft
Microsoft Corporation is a technology company. The Company develops, licenses, and supports a range of software products, services and devices. The Company's segments include Productivity and Business Processes, Intelligent Cloud and More Personal Computing. The Company's products include operating systems; cross-device productivity applications; server applications; business solution applications; desktop and server management tools; software development tools; video games, and training and certification of computer system integrators and developers. It also designs, manufactures, and sells devices, including personal computers (PCs), tablets, gaming and entertainment consoles, phones, other intelligent devices, and related accessories, that integrate with its cloud-based offerings. It offers an array of services, including cloud-based solutions that provide customers with software, services, platforms, and content, and it provides solution support and consulting services.

Current Price: $92.89
Consensus Rating: Buy
Ratings Breakdown: 27 Buy Ratings, 6 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $98.84 (6.4% Upside)

#5 - Coca-Cola (NYSE:KO)

The Coca-Cola logoThe Coca-Cola Company (NYSE:KO) has been struggling to grow earnings during the fast several years. The world is moving away from sugary sodas and toward healthier choices. This is causing the company's revenue to fall as well as its net income. Coca-cola is trying to enter into healthy beverage categories, but its efforts haven't yet been enough.

Coca-cola is facing strong headwinds, but it has enjoyed strong cash flow for decades and has more than $40 billion in cash on hand. Because of its strong financial position, much of the company's $220 million tax savings may go to either stock repurchases or dividend increases.

If the company put its entire tax savings towards its dividend, it could raise its dividend per share from $1.48 to $1.53. This would result in 3.36% dividend yield, up currently from 3.23%.

About The Coca-Cola
The Coca-Cola Company, a beverage company, manufactures and distributes various nonalcoholic beverages worldwide. The company provides water, enhanced water, and sports drinks; juices; juice, dairy, and plant?based beverages; teas and coffees; and energy drinks. It also offers concentrates, syrups, beverage bases, source waters, and powders/minerals, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores. The company sells its products primarily under the Coca-Cola, Diet Coke/Coca-Cola Light, Coca-Cola Zero Sugar, Fanta, Sprite, Minute Maid, Georgia, Powerade, Del Valle, Schweppes, Aquarius, Minute Maid Pulpy, Dasani, Simply, Glacéau Vitaminwater, Gold Peak, FUZE TEA, Glacéau Smartwater, Ice Dew, I LOHAS, and Ayataka brand names. The Coca-Cola Company offers its beverage products through a network of company-owned or controlled bottling and distribution operators, as well as through independent bottling partners, distributors, wholesalers, and retailers. The company was founded in 1886 and is headquartered in Atlanta, Georgia.

Current Price: $43.26
Consensus Rating: Hold
Ratings Breakdown: 10 Buy Ratings, 10 Hold Ratings, 2 Sell Ratings.
Consensus Price Target: $48.95 (13.2% Upside)

#6 - Boeing (NYSE:BA)

Boeing logoBoeing (NYSE:BA) is another widely-held dividend stock that is in a strong position to use its tax windfall for a dividend increase. They aren't saving a gargantuan amount of money, but will save about $93 million from the new tax legislation. This translates to a $0.16 per share dividend increase, raising its dividend to an even $7.00 per share and a dividend yield of 2.34%.

About Boeing
The Boeing Company, together with its subsidiaries, designs, develops, manufactures, sales, services, and supports commercial jetliners, military aircraft, satellites, missile defense, human space flight, and launch systems and services worldwide. The company operates in four segments: Commercial Airplanes; Defense, Space & Security; Global Services; and Boeing Capital. The Commercial Airplanes segment provides commercial jet aircraft for passenger and cargo requirements, and fleet support services, principally to the commercial airline industry. The Defense, Space & Security segment engages in the research, development, production, and modification of manned and unmanned military aircraft and weapons systems; strategic defense and intelligence systems, which include strategic missile and defense systems, command, control, communications, computers, intelligence, surveillance and reconnaissance, cyber and information solutions, and intelligence systems; and satellite systems, such as government and commercial satellites, and space exploration. The Global Services segment offers aviation services support, aircraft modifications, spare parts, training, maintenance documents, data analytics and information-based services, and technical advice to commercial and government customers. This segment also provides supply chain management and engineering support services; maintenance, modification, and upgrades for aircraft; and training systems and government services, that include pilot and maintenance training. The Boeing Capital segment offers financing services and manages financing exposure for a portfolio of equipment under operating and finance leases, notes and other receivables, assets held for sale or re-lease, and investments. The company was founded in 1916 and is headquartered in Chicago, Illinois.

Current Price: $331.76
Consensus Rating: Buy
Ratings Breakdown: 16 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $360.95 (8.8% Upside)

#7 - Pfizer (NYSE:PFE)

Pfizer logoPfizer (NYSE:PFE) will save about $150 million each year in tax because of the Tax Reform act. As a pharmaceutical company, Pfizer must regularly invest its earnings into research and development to find the next big blockbuster drug. Pfizer currently puts about $8 billion into research and development annually, yet the company continues to have free cash flow between $13 and $16 billion each year. 

It wouldn't be unreasonable for Pfizer to add a $0.025 dividend increase on top of its normal annual increase, which would result in a small yield boost from 3.75% to 3.77%. While this won't excite too many investors, many retirees that hold dividend stocks already hold PFE and will benefit from the increase.

About Pfizer
Pfizer Inc. (Pfizer) is a research-based global biopharmaceutical company. The Company is engaged in the discovery, development and manufacture of healthcare products. Its global portfolio includes medicines and vaccines, as well as consumer healthcare products. The Company manages its commercial operations through two business segments: Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). IH focuses on developing and commercializing medicines and vaccines, as well as products for consumer healthcare. IH therapeutic areas include internal medicine, vaccines, oncology, inflammation and immunology, rare diseases and consumer healthcare. EH includes legacy brands, branded generics, generic sterile injectable products, biosimilars and infusion systems. EH also includes a research and development (R&D) organization, as well as its contract manufacturing business. Its brands include Prevnar 13, Xeljanz, Eliquis, Lipitor, Celebrex, Pristiq and Viagra.

Current Price: $36.33
Consensus Rating: Hold
Ratings Breakdown: 8 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $39.24 (8.0% Upside)

#8 - Qualcomm (NASDAQ:QCOM)

QUALCOMM logoQualcomm (NASDAQ:QCOM) has $30 billion in cash sitting overseas that it can now repatriate to the United States at a 14% rate (in lieu of its previous 35% rate). More than one third of the company's market capitalization is sitting overseas in the form of cash that was previously too expensive to bring back to the United States.

Qualcomm already pays a healthy dividend yield of 3.49% and has steadily been raising its dividend by 4 or 5 cents each year. It wouldn't be a stretch for the company to issue a larger dividend increase in 2018, possibly as much as 10 cents per share, to cement its position as a company that's committed to raising its dividend. 

QUALCOMM Incorporated is engaged in the development and commercialization of a digital communication technology called code division multiple access (CDMA). The Company is engaged in the development and commercialization of the orthogonal frequency division multiple access (OFDMA) family of technologies, including long-term evolution (LTE), which is an Orthogonal Frequency Division Multiplexing (OFDM)-based standard that uses OFDMA and single-carrier Frequency Division Multiple Access (FDMA), for cellular wireless communication applications. The Company's segments include QCT (Qualcomm CDMA Technologies), QTL (Qualcomm Technology Licensing) and QSI (Qualcomm Strategic Initiatives). The Company also develops and commercializes a range of other technologies used in handsets and tablets that contribute to end user demand. The Company's products principally consist of integrated circuits (chips or chipsets) and system software used in mobile devices and in wireless networks.

Current Price: $58.37
Consensus Rating: Hold
Ratings Breakdown: 11 Buy Ratings, 14 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $68.74 (17.8% Upside)

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