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

8 Companies Likely to Issue Tax Cut Dividend IncreasesPosted on Thursday, March 1st, 2018 by MarketBeat Staff

President 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. designs, manufactures, and markets mobile communication and media devices, and personal computers. It also sells various related software, services, accessories, and third-party digital content and applications. The company offers iPhone, a line of smartphones; iPad, a line of multi-purpose tablets; and Mac, a line of desktop and portable personal computers, as well as iOS, macOS, watchOS, and tvOS operating systems. It also provides iTunes Store, an app store that allows customers to purchase and download, or stream music and TV shows; rent or purchase movies; and download free podcasts, as well as iCloud, a cloud service, which stores music, photos, contacts, calendars, mail, documents, and others. In addition, the company offers AppleCare support services; Apple Pay, a cashless payment service; Apple TV that connects to consumers' TVs and enables them to access digital content directly for streaming video, playing music and games, and viewing photos; and Apple Watch, a personal electronic device, as well as AirPods, Beats products, HomePod, iPod touch, and other Apple-branded and third-party accessories. The company serves consumers, and small and mid-sized businesses; and education, enterprise, and government customers worldwide. It sells and delivers digital content and applications through the iTunes Store, App Store, Mac App Store, TV App Store, Book Store, and Apple Music. The company also sells its products through its retail and online stores, and direct sales force; and third-party cellular network carriers, wholesalers, retailers, and resellers. Apple Inc. was founded in 1977 and is headquartered in Cupertino, California.

Current Price: $193.53
Consensus Rating: Hold
Ratings Breakdown: 24 Buy Ratings, 20 Hold Ratings, 3 Sell Ratings.
Consensus Price Target: $224.4474 (16.0% 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, manufactures, and sells Internet Protocol based networking and other products related to the communications and information technology industry worldwide. The company offers switching products; routing products that interconnect public and private wireline and mobile networks; data center products; and wireless access points for use in voice, video, and data applications. It also provides collaboration products comprising unified communications, TelePresence, and conferencing, as well as the Internet of Things and analytics software. In addition, the company offers security products, including network and data center security, advanced threat protection, Web and email security, access and policy, unified threat management, advisory, integration, and managed services; and other products, such as service provider video software and solutions, and cloud and system management products. Further, it offers technical support services and advanced services; and hyperconvergence software, cloud calling and contact center solutions, and AI-driven relationship intelligence platform. The company serves businesses of various sizes, public institutions, governments, and service providers. It sells its products directly, as well as through channel partners, such as systems integrators, service providers, other resellers, and distributors. The company was founded in 1984 and is headquartered in San Jose, California.

Current Price: $46.35
Consensus Rating: Buy
Ratings Breakdown: 24 Buy Ratings, 5 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $49.4074 (6.6% 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. operates as a home improvement retailer. It operates The Home Depot stores that sell various building materials, home improvement products, lawn and garden products, and décor products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself and professional customers. The company also offers installation programs that include flooring, cabinets, countertops, water heaters, and sheds; and professional installation in various categories sold through its in-home sales programs, such as roofing, siding, windows, cabinet refacing, furnaces, and central air systems, as well as acts as a contractor to provide installation services to its do-it-for-me customers through third-party installers. In addition, it provides tool and equipment rental services. The company primarily serves home owners; and professional renovators/remodelers, general contractors, handymen, property managers, building service contractors, and specialty tradesmen, such as installers. It also sells its products through online. As of January 28, 2018, the company operated 2,284 stores, including 1,980 in the United States, including the Commonwealth of Puerto Rico, and the territories of the U.S. Virgin Islands and Guam; 182 in Canada; and 122 in Mexico. The Home Depot, Inc. was founded in 1978 and is based in Atlanta, Georgia.

Current Price: $177.02
Consensus Rating: Buy
Ratings Breakdown: 18 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $203.1283 (14.7% 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 develops, licenses, and supports software, services, devices, and solutions worldwide. Its company's Productivity and Business Processes segment offers Office 365 commercial products and services for businesses, such as Office, Exchange, SharePoint, Skype for Business, Microsoft Teams, and related Client Access Licenses (CALs); Office 365 consumer services, including Skype, Outlook.com, and OneDrive; LinkedIn online professional network; and Dynamics business solutions comprising financial management, enterprise resource planning, customer relationship management, supply chain management, and analytics applications for small and medium businesses, large organizations, and divisions of enterprises. The company's Intelligent Cloud segment licenses server products and cloud services, such as SQL Server, Windows Server, Visual Studio, System Center, and related CALs, as well as Azure, a cloud platform; enterprise services, including premier support and Microsoft consulting services to assist customers in developing, deploying, and managing Microsoft server and desktop solutions, as well as providing training and certification to developers and IT professionals on Microsoft products. Its More Personal Computing segment offers Windows OEM, volume, and other non-volume licensing of the Windows operating system; patent licensing, Windows Internet of Things, and MSN display advertising; devices comprising Surface, PC accessories, and other intelligent devices; Xbox hardware and software and services; and Bing and Bing Ads search advertising. The company markets and distributes its products through original equipment manufacturers, distributors, and resellers, as well as through online and Microsoft retail stores. Microsoft Corporation has collaboration with E.ON to develop smart connected home solutions. The company was founded in 1975 and is headquartered in Redmond, Washington.

Current Price: $108.29
Consensus Rating: Buy
Ratings Breakdown: 32 Buy Ratings, 1 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $122.4483 (13.1% 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: $50.17
Consensus Rating: Hold
Ratings Breakdown: 11 Buy Ratings, 12 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $51.6190 (2.9% 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 has a strategic partnership with Safran. The Boeing Company was founded in 1916 and is headquartered in Chicago, Illinois.

Current Price: $335.95
Consensus Rating: Buy
Ratings Breakdown: 17 Buy Ratings, 7 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $412.3333 (22.7% 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. discovers, develops, manufactures, and sells healthcare products worldwide. It operates in two segments, Pfizer Innovative Health (IH) and Pfizer Essential Health (EH). The IH segment focuses on the development and commercialization of medicines and vaccines, and consumer healthcare products in various therapeutic areas, including internal medicine, vaccines, oncology, inflammation and immunology, and rare diseases, as well as consumer healthcare, such as over-the-counter brands comprising dietary supplements, pain management, gastrointestinal, and respiratory and personal care. This segment offers products primarily under the Prevnar 13/Prevenar 13, Xeljanz, Eliquis, Lyrica, Enbrel, Ibrance, Xtandi, Advil, and Centrum brands. The EH segment offers products that would lose or have lost marketing patent protection; branded generic products; generic sterile injectable products; biosimilars; and anti-infectives. It provides products under the Lipitor, Premarin family, Norvasc, Lyrica, Celebrex, Viagra, Inflectra/Remsima, Pristiq, Zyvox, Vfend, Revatio, Inspra, Medrol, Sulperazon, Fragmin, Tygacil, Nivestim, and Retacrit brands. This segment also engages in the research and development, as well as contract manufacturing activities. The company serves wholesalers, retailers, hospitals, clinics, government agencies, pharmacies, and individual provider offices, as well as disease control and prevention centers. Pfizer Inc. has collaboration and/or co-promotion agreements with Bristol-Myers Squibb Company; Astellas Pharma US, Inc.; Merck KGaA; Immutep Limited; BioNTech AG; Neofluidics, LLC; Kite Pharma, Inc.; Merck KGaA; Leap Therapeutics, Inc.; and Nektar Therapeutics, as well as development agreement with Antares Pharma, Inc. Pfizer Inc. was founded in 1849 and is headquartered in New York, New York.

Current Price: $43.51
Consensus Rating: Hold
Ratings Breakdown: 7 Buy Ratings, 13 Hold Ratings, 2 Sell Ratings.
Consensus Price Target: $43.00 (-1.2% 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. 

About QUALCOMM
QUALCOMM Incorporated designs, develops, manufactures, and markets digital communication products worldwide. It operates through three segments: Qualcomm CDMA Technologies (QCT); Qualcomm Technology Licensing (QTL); and Qualcomm Strategic Initiatives (QSI). The QCT segment develops and supplies integrated circuits and system software based on code division multiple access (CDMA), orthogonal frequency division multiple access, and other technologies for use in wireless voice and data communications, networking, application processing, multimedia, and global positioning system products. The QTL segment grants licenses or provides rights to use portions of its intellectual property portfolio, which include various patent rights useful in the manufacture and sale of wireless products comprising products implementing CDMA2000, wideband CDMA, CDMA time division duplex, and/or long term evolution standards and their derivatives. The QSI segment invests in early-stage companies in various industries, including automotive, Internet of things, mobile, data center, and healthcare for supporting the design and introduction of new products and services for voice and data communications, and new industry segments. The company also provides products and services for mobile health; products designed for the implementation of small cells; development, and other services and related products to the United States government agencies and their contractors; and software products, and content and push-to-talk enablement services to wireless operators. In addition, it licenses chipset technology, and products and services for use in data centers. QUALCOMM Incorporated was founded in 1985 and is headquartered in San Diego, California.

Current Price: $55.88
Consensus Rating: Buy
Ratings Breakdown: 11 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $70.5294 (26.2% Upside)





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