Dividend Growth Streaks: A New Era for Top Companies
Recent Dividend Increases by Major Companies
In a significant move, tech giant Microsoft (NASDAQ: MSFT) has recently raised its dividend by an impressive 11%, which translates to an annual expense of around $25 billion. This increase positions Microsoft among the leading global companies that are dedicated to providing returns to their shareholders.
Similarly, other notable corporations are also providing favorable news for their investors. For instance, Verizon (NYSE: VZ) has announced a less substantial increase of under 2%, while preferred real estate investment trust (REIT), Realty Income (NYSE: O), announced an even smaller increase. Despite these modest adjustments, both companies maintain strong reputations in the marketplace.
The impact of these raises is amplified by the longevity and consistency these companies have in increasing their dividends, often exceeding a decade. This consistency is crucial as history shows that companies that increase their dividends typically offer higher total returns to investors in the long run.
The Insights Behind Dividends
Recent analyses from Hartford Funds and Ned Davis Research reveal significant insights regarding stocks and their dividend policies over the past half-century. Their research indicates that average dividend payers achieve a 9.2% average annualized total return, outpacing non-payers, which yield lower returns accompanied by higher volatility. Specifically, non-payers average only 4.3% returns, reflecting the essential role dividends play in a strategic investment plan.
However, not all dividends are created equal. Dividend growers and initiators have notably performed better than those maintaining their payouts or cutting back. In fact, dividend growers and initiators delivered an astounding 10.2% return with a lower risk profile, as measured by beta—a risk metric assessing the volatility of stocks compared to the market.
Leading Companies in Dividend Growth
Microsoft has established a commendable track record of dividend growth, consistently increasing payouts at a double-digit rate over the past ten years. This trend has contributed to a remarkable 20-year growth streak, during which time total returns have surged—averaging over 16% annually versus 11% for the S&P 500 index.
Given the substantial earnings potential from its operations—analysts anticipate $81 billion in free cash flow next year—Microsoft appears well-positioned to sustain this upward trajectory. This cash flow will not only support the growing dividend but also provide resources for further investment and stock repurchase, bolstered by its robust balance sheet.
Verizon, on the other hand, boasts a commendable track record, as evidenced by 18 consecutive years of dividend increases—a record within the U.S. telecom sector. Despite a modest raise for its investors, Verizon remains competitive with a dividend yield exceeding 6%, benefiting from a strong cash flow position.
During the first half of the year, Verizon generated $16.1 billion in operational cash flow, allowing it to easily fund its capital expenditures while leaving substantial surplus to cover its dividend obligations. This excess cash flow will empower Verizon to continue increasing its already solid dividend, especially as it invests in expanding its 5G capabilities and fiber networks.
Consistent Success in Realty Income
Realty Income has also demonstrated resilience in its dividend growth, increasing its monthly payout for the fifth time this year, resulting in its 127th increase since going public back in 1994. Although the recent increase is modest, Realty Income shows consistency and an impressive annual total return of 13.5% since becoming publicly traded, mainly attributed to its appealing yield and steady payout growth of 4.3% compound annual growth over the last three decades.
As Realty Income continues to forecast growth at a rate of 4% to 5% annually in its adjusted funds from operations, it seems well-equipped to persistently enhance its dividend for shareholders, potentially leading to double-digit annualized total returns.
The Future of Dividend Growth
As historically observed, dividend-growth stocks tend to yield superior total returns compared to their peers. Investments in corporations like Microsoft, Verizon, and Realty Income indicate strong financial health and suggest potential for continued dividend growth. As these companies move forward, they are set to provide fair returns to investors who take advantage of the recent raises and ongoing growth prospects.
Frequently Asked Questions
What does dividend growth mean for investors?
Dividend growth indicates a company's financial strength and long-term success; it suggests that investors can expect regular payouts, often leading to higher returns over time.
Why is Microsoft’s dividend increase significant?
Microsoft’s substantial dividend increase reflects its strong cash flow and commitment to returning value to shareholders, reinforcing its position in the market.
How do dividend-paying stocks compare to non-payers?
Dividend-paying stocks generally offer higher total returns and lower volatility compared to non-payers, making them more attractive for long-term investors.
What is the potential for future dividend increases from Verizon?
Given Verizon's solid cash flow position and continued investments in growth areas such as 5G, it’s positioned well to enhance its dividend further in the future.
Why should investors consider Realty Income?
Realty Income has a long history of consistent dividend payments and growth, making it an attractive choice for income-focused investors looking for reliability.
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