A Comeback for Dividends

The biggest hikes in the Kiplinger Dividend 15 were 10% increases from Home Depot and Procter & Gamble.

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The reopening of the economy means more revenue flowing into corporate coffers. And that cash infusion is boosting the fortunes of companies that pay dividends, including members of the Kiplinger Dividend 15 (opens in new tab).

Our list of favorite dividend-paying stocks continues its steady showing, with five members increasing their dividends since our update in the April issue.

The biggest hikes came from home-improvement retailer Home Depot (HD (opens in new tab)) and consumer-products giant Procter & Gamble (PG (opens in new tab)), known for brands such as Charmin and Tide. Both firms upped annual payouts by 10%. Johnson & Johnson (JNJ (opens in new tab)), which received authorization for its COVID-19 vaccine in February, also boosted its payout, as did retailer Walmart (WMT (opens in new tab)) and Realty Income (O (opens in new tab)), a real estate investment trust.

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As a group, the Dividend 15 stocks yield 3.1% – more than double the yield of the S&P 500 Index. (Yields, returns and other data are as of June 4.)

The outlook for dividends continues to improve, thanks to the swift earnings recovery for many firms after a tough 2020.

"Pandemic-related reasons for dividend reductions are in the rearview mirror," says Jamie Cox, managing partner at Harris Financial Group. S&P Dow Jones Indices now projects at least a 5% increase in S&P 500 dividends this year compared with a year ago, up from a 4% estimate in April.

Top Performers

In terms of total returns (dividends plus price appreciation), our 15 picks have gained 28.4%, on average, over the past 12 months – less than the 38.1% for the S&P 500.

But so far in 2021, our picks' 15.4% gain is competitive with the S&P 500's 14.1% advance. The Dividend 15's best performers, which include private-equity firm Blackstone Group (BX (opens in new tab)), electrical component maker Emerson Electric (EMR (opens in new tab)), and analog semiconductor manufacturer Texas Instruments (TXN (opens in new tab)), handily topped the S&P 500 in both the past year and year-to-date periods.

The big winner was Blackstone, up 65.7% over the past 12 months. Investment bank Piper Sandler boosted earnings projections for Blackstone for this year and 2022, citing a rebound in the parts of its portfolio hurt by the pandemic, such as rental housing, hotels, offices and retail, as well as Blackstone's strong fee-related gains and robust fund-raising for future investment activities.

Emerson Electric is also building on momentum. A solid balance sheet, improving sales growth and strong leadership under a new CEO bode well for another dividend hike in 2022, according to Argus Research. In April, Texas Instruments said its strong free cash flow underscores the sustainability of its payout.

Defense contractor Lockheed Martin (LMT (opens in new tab)) was flat for the past year, but has gained nearly 13% in 2021 as supply-chain challenges moderate and fears of cutbacks in military spending ease. President Biden proposed a $715 billion defense budget for 2022, a 1.4% increase over this year. "The dividend payout is secure, and we expect it to grow," says Argus analyst John Eade.

Contributing Writer