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S&P 500   3,911.74
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S&P 500   3,911.74
DOW   31,500.68
QQQ   294.61
S&P 500   3,911.74
DOW   31,500.68
QQQ   294.61
S&P 500   3,911.74
DOW   31,500.68
QQQ   294.61

8 Companies Likely to Issue "Tax Cut" Dividend Increases

Posted on Thursday, March 1st, 2018 by Matthew Paulson
8 Companies Likely to Issue Tax Cut Dividend IncreasesPresident Trump and Congress passed the first major tax legislation in the last 30 years.. 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 smartphones, personal computers, tablets, wearables, and accessories worldwide. It also sells various related services. In addition, the company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; AirPods Max, an over-ear wireless headphone; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, HomePod, and iPod touch.Read More 
Current Price
$141.66
Consensus Rating
Moderate Buy
Ratings Breakdown
24 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
Consensus Price Target
$186.60 (31.7% 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 in the Americas, Europe, the Middle East, Africa, the Asia Pacific, Japan, and China. It provides infrastructure platforms, including networking technologies of switching, routing, wireless, and data center products that are designed to work together to deliver networking capabilities, and transport and/or store data.Read More 
Current Price
$44.10
Consensus Rating
Hold
Ratings Breakdown
12 Buy Ratings, 11 Hold Ratings, 1 Sell Ratings.
Consensus Price Target
$55.05 (24.8% 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 facilities maintenance, repair, and operations products The company also offers installation services for flooring, cabinets and cabinet makeovers, countertops, furnaces and central air systems, and windows.Read More 
Current Price
$283.00
Consensus Rating
Moderate Buy
Ratings Breakdown
16 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
Consensus Price Target
$369.82 (30.7% 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 Productivity and Business Processes segment offers Office, Exchange, SharePoint, Microsoft Teams, Office 365 Security and Compliance, and Skype for Business, as well as related Client Access Licenses (CAL); Skype, Outlook.com, OneDrive, and LinkedIn; and Dynamics 365, a set of cloud-based and on-premises business solutions for organizations and enterprise divisions.Read More 
Current Price
$267.70
Consensus Rating
Moderate Buy
Ratings Breakdown
28 Buy Ratings, 1 Hold Ratings, 0 Sell Ratings.
Consensus Price Target
$353.36 (32.0% Upside)




#5 - Coca-Cola (NYSE:KO)

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 Coca-Cola

The Coca-Cola Company, a beverage company, manufactures, markets, and sells various nonalcoholic beverages worldwide. The company provides sparkling soft drinks; flavored and enhanced water, and sports drinks; juice, dairy, and plant-based beverages; tea and coffee; and energy drinks. It also offers beverage concentrates and syrups, as well as fountain syrups to fountain retailers, such as restaurants and convenience stores.Read More 
Current Price
$63.04
Consensus Rating
Moderate Buy
Ratings Breakdown
11 Buy Ratings, 6 Hold Ratings, 0 Sell Ratings.
Consensus Price Target
$68.05 (8.0% 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 through four segments: Commercial Airplanes; Defense, Space & Security; Global Services; and Boeing Capital.Read More 
Current Price
$141.53
Consensus Rating
Moderate Buy
Ratings Breakdown
15 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
Consensus Price Target
$225.83 (59.6% 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, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas, including cardiovascular metabolic and women's health under the Premarin family and Eliquis brands; biologics, small molecules, immunotherapies, and biosimilars under the Ibrance, Xtandi, Sutent, Inlyta, Retacrit, Lorbrena, and Braftovi brands; and sterile injectable and anti-infective medicines, and oral COVID-19 treatment under the Sulperazon, Medrol, Zavicefta, Zithromax, Vfend, Panzyga, and Paxlovid brands.Read More 
Current Price
$51.59
Consensus Rating
Moderate Buy
Ratings Breakdown
9 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
Consensus Price Target
$57.26 (11.0% 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. 

About QUALCOMM

QUALCOMM Incorporated engages in the development and commercialization of foundational technologies for the wireless industry worldwide. The company 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 3G/4G/5G and other technologies for use in wireless voice and data communications, networking, application processing, multimedia, and global positioning system products.Read More 
Current Price
$125.10
Consensus Rating
Moderate Buy
Ratings Breakdown
15 Buy Ratings, 9 Hold Ratings, 0 Sell Ratings.
Consensus Price Target
$195.29 (56.1% Upside)



 




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