Dividends are set to boom, and UBS is using AI to predict which stocks will raise payouts

Published Thu, Jul 15 20213:56 PM EDTUpdated Thu, Jul 15 20213:59 PM EDT

Stock dividends are set to make a grand comeback as companies get ready to return cash to shareholders after shaking off the pandemic hit. For investors wanting to capitalize on the new dividend cycle, UBS used machine learning to identify a slew of companies poised to see the biggest increase in payouts in the next year. UBS predicted that S & P 500 dividends will grow by about 30%, or $150 billion in total, by the end of 2022, supported by a strong recovery in earnings. Payouts are already on the rise with U.S. domestic common stock dividends increasing $12.9 billion during the second quarter, compared to a $42.5 billion drop a year ago in the height of the Covid crisis, according to data from S & P Dow Jones Indices. The bank used various algorithms to test a number of potential explanatory variables and identified 17 key drivers of dividend trends. The models found that factors such as dividend yield, dividend growth, payout ratios and EPS revisions play a big role in companies' ability to raise payouts. Through backtesting, UBS' models have an accuracy of 75% for predicting upward revisions in dividend yields. Here's the criteria for top potential dividend growers from UBS: Stocks that rank in the top 25 stocks predicted to see strong dividend revisions A market cap greater than $7 billion Buy rated by UBS analysts Stock with at least a 2% dividend yield. Morgan Stanley is projected to have a 2.3% dividend yield in the next 12 months, according to UBS. The Wall Street powerhouse announced at the end of June that it doubled its quarterly dividend to 70 cents a share starting in the third quarter, and it would buy up to $12 billion of its own stock through June 2022. Industrial names United Parcel Service and Illinois Tool Works are also expected to see big growth in dividends. HP Inc. could raise its dividend to 2.8% in the next year, UBS said. The tech company reported strong results for its second quarter, beating the Street on its top and bottom lines. The stock is up 16% this year. EOG Resources, Extra Space Storage and Eastman Chemical Company are also on the list.

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Brendan McDermid | Reuters

Stock dividends are set to make a grand comeback as companies get ready to return cash to shareholders after shaking off the pandemic hit.

For investors wanting to capitalize on the new dividend cycle, UBS used machine learning to identify a slew of companies poised to see the biggest increase in payouts in the next year.