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8 Companies Likely to Issue "Tax Cut" Dividend Increases in 2020

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

President 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. The company offers iPhone, a line of smartphones; Mac, a line of personal computers; iPad, a line of multi-purpose tablets; and wearables, home, and accessories comprising AirPods, Apple TV, Apple Watch, Beats products, HomePod, iPod touch, and other Apple-branded and third-party accessories. Read More 

Current Price: $455.61
Consensus Rating: Buy
Ratings Breakdown: 28 Buy Ratings, 14 Hold Ratings, 4 Sell Ratings.
Consensus Price Target: $373.92 (-17.9% 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. Read More 

Current Price: $47.77
Consensus Rating: Buy
Ratings Breakdown: 14 Buy Ratings, 14 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $50.35 (5.4% 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. Read More 

Current Price: $269.37
Consensus Rating: Buy
Ratings Breakdown: 24 Buy Ratings, 9 Hold Ratings, 1 Sell Ratings.
Consensus Price Target: $256.14 (-4.9% 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, 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. Read More 

Current Price: $216.35
Consensus Rating: Buy
Ratings Breakdown: 32 Buy Ratings, 3 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $213.82 (-1.2% 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 and distributes various nonalcoholic beverages worldwide. The company provides sparkling soft drinks; water, enhanced water, and sports drinks; 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. Read More 

Current Price: $47.48
Consensus Rating: Buy
Ratings Breakdown: 16 Buy Ratings, 4 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $54.30 (14.4% 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. Read More 

Current Price: $172.20
Consensus Rating: Hold
Ratings Breakdown: 8 Buy Ratings, 14 Hold Ratings, 5 Sell Ratings.
Consensus Price Target: $220.24 (27.9% 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 offers medicines and vaccines in various therapeutic areas, including internal medicine, vaccines, oncology, inflammation and immunology, and rare diseases under the Lyrica, Chantix/Champix, Eliquis, Ibrance, Sutent, Xalkori, Inlyta, Xtandi, Enbrel, Xeljanz, Eucrisa, BeneFix, Genotropin, and Refacto AF/Xyntha brands. Read More 

Current Price: $38.27
Consensus Rating: Hold
Ratings Breakdown: 4 Buy Ratings, 8 Hold Ratings, 0 Sell Ratings.
Consensus Price Target: $38.86 (1.5% 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 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. Read More 

Current Price: $111.06
Consensus Rating: Buy
Ratings Breakdown: 18 Buy Ratings, 5 Hold Ratings, 3 Sell Ratings.
Consensus Price Target: $108.41 (-2.4% Upside)


12 Cheap Dividend Stocks to Buy Today

While COVID-19 was a suckerpunch to the stock market earlier in the year, the stock market is roaring back.  The Dow is hovering around 27,000 and the S&P 500 is trading near 3,200. S&P 500 stocks are trading at nearly 23 times their annual earnings, still well above historical norms.

At the same time, interest rates are near all-time lows (and probably dipping even lower). 10-year Treasuries are yielding just 0.9% and collectively S&P 500 stocks are yielding under 2%. Some investors think that it's too challenging to find safe and affordable securities that pay 4%, 5%, and even 6% yields.

Searching for yield isn't easy in an environment where historically high asset prices and stimulus from the Fed have driven down yields. This doesn't leave many options for investors looking for retirement income or a decent dividend yield on their stocks, but there are a handful of cheap dividend stocks to buy that are still yielding 3-6%. 

Let's review some of the best cheap dividend stocks in the market today in this slideshow.

View the "12 Cheap Dividend Stocks to Buy Today" Here.

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