These companies are hiking their dividends – What to know before you buy shares

Published Thu, Feb 22 20242:50 PM EST

February is about to end on a sweet note for income investors, with close to 70 S & P 500 companies expected to announce dividend hikes this month alone, according to Howard Silverblatt of S & P Dow Jones Indices. Through last Friday, 47 dividend increases were announced this month, according to Silverblatt, who is senior index analyst, product management at the company. Big names boosting dividends as of late include Walmart , which hiked its annual payment by 9% to 83 cents a share. Railway company CSX cleared a 9% hike in its quarterly dividend to 12 cents a share, while Thermo Fisher Scientific raised its quarterly dividend by 11% dividend by 11% to 39 cents per share. Meta Platforms made headlines earlier this month when it announced it would issue its first-ever quarterly dividend – a payout of 50 cents per share. "The companies are doing well, the cash flow is good, the earnings are good, and the season is about over," Silverblatt said, noting that S & P 500 dividends are expected to rise 5.5% to 6% this year. Part of the reason behind these announcements in February is that these companies are preparing for shareholder meetings – and news of a dividend hike is most welcome among investors, he added. But there is a measure of caution, particularly as the average dividend increase is now 8.3%, compared to 2021's average hike of 12%, Silverblatt said. "The average increase is lower, and that's because companies are cautious going forward," he said. Uncertainty looms Factors companies are grappling with include whether the economy can safely navigate a soft landing. Based on January's readings of the producer price index and the consumer price index , inflation continues to be a persistent force – and retail sales fell 0.8% last month, more than economists expected. Government spending, including the CHIPS Act and the infrastructure legislation known as the Inflation Reduction Act , and the upcoming presidential election are also key considerations for companies, Silverblatt added. "People have jobs and are spending money, which is enough for companies to give that average 8.3% increase, but you need more assurance out there, perhaps knowing who is going to be president," he said. "The unknown is what the market hates the most." In search of income Investors shopping for income-payers amid this news on dividend hikes should be mindful of a few considerations first. Know your objective: Not all dividend stocks are alike. Dividend growth names, for instance, might offer you lower yields in the present, but you have the prospect of higher future payouts. Tech names like Apple or Microsoft aren't high yield payers , but they tend to be a higher quality play. Dividend aristocrats – companies that have raised dividends in each of the past 25 years – include a range of household names with a history of steady payments: Caterpillar , McDonald's and ExxonMobil are just a few of them. The appreciation of the stock itself may not be off the charts, but the income is likely dependable. Be wary of high yields: High yielding stocks, meanwhile, offer attractive income now, but those dividends could be slashed if the economy falters – and they could reflect a company that has limited growth prospects or one that's facing hard times. "A high yielding stock or fund is a sign – not that you've found a bargain – but that it's a depressed stock," Silverblatt said. "You can't get greedy." Study what's under the hood: Buying up an exchange traded fund with a dividend-paying focus is an easy way to incorporate these names into your portfolio. Be sure to look at the underlying holdings and understand what's driving the yield. Avoid sizeable concentration in any one sector. "You need to know the fund, what they invest in and what the restrictions are," Silverblatt said. "If you buy one that's high yielding, it probably has a lot of utilities in there."