For many investors, 2011 should be remembered as the year of the dividend.
Weary of market volatility, investors are flocking to dividend stocks to lock in yields often twice the meager 2% return on U.S. Treasuries. Dividend stocks will likely remain popular as long as fears of Europe's debt crisis and a double-dip recession grip the market. An added bonus is dividends that may get a nice boost next year if companies start distributing more of their record cash stockpiles to boost shareholder value.
But investors shouldn't wait for dividends to be raised further. It's far smarter to lock in a 4% yield (which is still pretty good) from a solid company's shares now, for example, and watch that dividend payout grow to become a 6%, 8%, 10% --even higher -- yield on your original purchase price.
With this in mind, here are five stocks that made sizable payout hikes (at least 20%) this year while offering enticing high yields for investors. The best part: they're all reliable firms that could easily afford dividend growth in the months to come.
Dividend hike: 33%
Lockheed Martin is a major defense contractor and the world's leading manufacturer of military aircraft. The company's new F-35 fighter is expected to be the primary driver of earnings growth in the next 10 years. The Pentagon plans to buy 2,400 aircraft for $380 billion, and orders booked from foreign countries could raise total purchases to more than $500 billion.
Lockheed's $34.3 billion in sales during the first nine months of 2011 were 4% higher compared with a year earlier, while earnings per share (EPS) improved 11% to $5.17, helped by large share repurchases.
In May, Lockheed raised dividends 33% to $1.00 per share. With payout at only 36% of earnings and annual cash flow exceeding $3 billion, Lockheed could easily afford another dividend increase. The company has raised payout nine years in a row.
2. Intel (Nasdaq: INTC)
Dividend hike: 30% in 13 months
Intel is a leading manufacturer of microprocessors for PCs, notebooks and computer servers. Emerging-market demand for PCs is driving this company's growth. The Asia Pacific region now accounts for nearly 60% of Intel's sales.
Intel set new records for shipments, sales and earnings in the third quarter of 2011. As a result, quarterly sales rose 28%, surpassing $14 billion for the first time, while earnings rose 17% to $3.5 billion compared with the same period in 2010. EPS jumped 25% to $0.65 in the period. Intel increased its dividend 16% in May to a $0.84 annual rate, following a 15% hike in November 2010. The dividend payout has grown 33% a year since 2003. [These factors are big reasons why StreetAuthority co-Founder Paul Tracy calls Intel a "forever stock." You can sleep easy at night knowing you own a solid blue-chip company that dominates its industry, while still enjoying impressive growth and rapidly-rising dividend payments.]
3. Philip Morris International (NYSE: PM)
Dividend hike: 20%
Philip Morris owns seven of the world's top 15 tobacco brands, including Marlboro, the No.1 cigarette brand worldwide. The company holds a 16% share of the global cigarette market outside of the United States.
Sales climbed 26% in the third quarter of 2011 to $8.4 billion, while EPS improved 36% from the year-ago period to $1.35. Philip Morris targets 22% earnings growth for 2011.
In September, Philip Morris raised dividends 20% to a $3.08 annual rate. Since the company's spin-off from Altria (NYSE: MO) three years ago, dividends have grown 67%. [Phillip Morris is also one of Paul Tracy's favorite "forever stocks." To learn more about "forever stocks" -- and to get more of his favorite picks -- click here to watch this special presentation.]
4. Dr. Pepper Snapple Group (NYSE: DPS)
Dividend hike: 28%
Dr. Pepper owns six of the top 10 best-selling non-cola beverages. In addition to its flagship Dr. Pepper and Snapple brands, the company owns 7-UP, Mott's, A&W, Sunkist Soda, Hawaiian Punch, Canada Dry, Schweppes, Squirt, RC Cola and Diet Rite. It generates $5.6 billion in annual sales and operates 22 bottling facilities across North America.
Dr. Pepper's sales improved 5% during the first nine months of 2011, to $4.4 billion, compared with the same period in 2010, due to price increases and a better sales mix. Nine-month EPS rose 17% to $1.97. Analysts look for 14% earnings growth this year and 8% annual growth in the longer-term.
Dr. Pepper raised dividends 28% in May to a $1.28 annual rate. This was the second increase since becoming a stand-alone public company three years ago. Payout is moderate at 46%, allowing for future dividend increases.
5. Safeway (NYSE: SWY)
Dividend hike: 21%
The grocery business is among the most recession-resistant, and Safeway owns one of the largest grocery store chains in North America. The company operates about 1,700 supermarkets in the mid-Atlantic and western United States, as well as in Canada. Most stores hold the first or second market share spots in areas served.
Although EPS has grown only 4.5% a year in the past five years, Safeway has been improving same-store sales and cutting debt. As a result, EPS increased 15% in this year's third quarter to $0.38 from $0.33 a year ago. Analysts forecast 9% annual earnings growth in the next five years.
Safeway has increased its dividend every year since payments began in 2005. The company increased dividends 21% in May to a $0.58 annual rate. With annual cash flow exceeding $1.7 billion and a 36% dividend payout, Safeway could easily support further dividend growth.
Risks to consider: Lockheed is booking strong orders for F-35 fighters, but its other businesses could suffer if the government cuts defense spending even more. Intel's fourth-quarter sales will likely be hurt by a shortage of disk drives, and supply constraints will likely continue into first quarter 2012.
Action to take --> My picks for aggressive portfolios are Lockheed and Intel because of their sharply rising sales and dividends. Conservative investors may prefer Philip Morris or Safeway, which have slower growth but greater recession-resistance qualities. Dr. Pepper combines reasonable safety with above-average earnings growth.