Dividend Roundup: The Three Most Generous Big Companies

Although the total amount of dividends paid has been steadily increasing, most big companies are actually not generous payers, considering the portion of earnings they return to shareholders.

The businesses that comprise the S&P 500 Index are projected to pay out only 33% of earnings in the fourth quarter of 2013 -- well below the historical average of 52%.

Let's look at the three S&P 500 companies that write the biggest checks to shareholders and see whether they're being as generous as those eye-popping numbers suggest.

Generous Ma Bell
Ranked No. 3 within the S&P 500 is the telecom giant AT&T (NYSE: T  ) , which paid out $2.4 billion in the third quarter and just announced a modest (and some would say disappointing) 2% increase in the dividend, which has been bumped up each year since 1985. The average annual increase had been 4.8%.

The small increase will not have been a surprise if you looked into the numbers. AT&T already pays out 123% of its earnings (which are projected to grow slowly next year), so there wasn't a lot of room to maneuver. And with a relatively elevated long-term debt-to-equity ratio of 80%, the company probably doesn't want to borrow to return more cash to shareholders.

AT&T might need to use excess cash and to borrow to fund future expansion in wireless and grow revenue. It is considering buying the European operations of Vodafone, which could set the company back as much as $175 billion. It is also in the process of selling off some assets, like its wired operations in Connecticut, to generate cash. 

So investors looking for dividend growth from AT&T might need to look elsewhere, at least in the short term.

Apple gives a baggie instead of a bushel
The biggest company in the world by market cap is the second-biggest payer in the S&P 500. Apple (NASDAQ: AAPL  ) doled out $2.76 billion, or about $3 per share, last quarter.

The company, which just reinstituted its dividend last year after a long hiatus, uses about 29% of earnings to return cash to shareholders. Some of the earnings are parked overseas, probably because Apple doesn't want to bring it back to the U.S. and pay a higher corporate income-tax rate on it. It has issued bonds to help fund the dividend and share buybacks, which also return value to investors.

Apple generates those earnings by selling millions of consumer devices and computers. The company just finished its yearly upgrade of all of its major products and is betting that sales of refreshed iPhones, iPads, and Macs help reverse recent declines in EPS.

CEO Tim Cook predicted an "iPad Christmas" in October, and if things go as planned and growth returns to Cupertino, investors may have a happy holiday season indeed. Apple may even be able to increase its dividend and move up to No. 1.

Not exactly a gusher
Topping the list of big companies that pay big dividends is big oil and gas producer ExxonMobil  (NYSE: XOM  ) . The company, which is ranked No. 2 by market cap, has made headlines recently by calling for the government to allow crude-oil exports. It narrowly beat out Apple by paying $2.77 billion last quarter. About 31% of earnings are returned to shareholders in the form of dividends.

ExxonMobil is asking for the export ban to be lifted because the revitalization in domestic energy-production has created an adequate supply of oil and natural gas here, and opening up overseas markets will help its business. 

The company probably needs those exports in order to improve growth. Revenue has been increasing at only single-digit rates over the past half-decade, even as oil prices have risen.

A reasonable P/E ratio of about 12 and low debt and payout ratios make ExxonMobil an attractive stock to consider for dividend growth hunters. 

Foolish conclusion
The really big American companies are projected to pay out only a fraction of earnings in the form of dividends this quarter. Chief among them are big spenders like ExxonMobil and Apple, which look appealing because they can well afford to share more wealth with shareholders.

Meanwhile, AT&T pays out a far great portion of its earnings than the average S&P 500 constituent, so if you seek dividend growth, you may want to look elsewhere.

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  • Report this Comment On December 26, 2013, at 2:28 PM, willy325 wrote:

    I would hardly call XOM a "big dividend" payer. As far as I am concerned they are cheapskates who should double their dividend ASAP in order to keep legacy shareholders as owners.

  • Report this Comment On December 26, 2013, at 5:28 PM, Mathman6577 wrote:

    @willy325: I agree with you. They probably have enough room to boost it. "Big" spenders only in absolute, not relative terms.

  • Report this Comment On January 12, 2014, at 7:15 AM, Jakester wrote:

    Vodafone Shareholders – How to avoid CGT tax on share windfalls?

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    There is an obvious TAX FREE solution! Clearly any UK shareholder, including myself, that has utilised their CGT allowances would do well to “rollover” their gain by investing into an Enterprise Investment Scheme (EIS) start-up whereby they will be eligible for not only a 30% tax refund (applicable to the previous or current tax year – you choose) as well as a further CGT deferral of 28% (and IHT deferral if you have that tax position also) – the CGT deferral can be applied to any of the last 3 tax years – but for Vodafone shareholders it will be the 2013/2014 year that is hurting them. One such EIS investment that in my eyes is gearing up to be a potential winner is www.africanewenergies.com (part of the Alumni Oil Group) who have created an oil & gas exploration through the EIS that is now at a point of showing hard evidence that they have discovered a multi-billion barrel new oil province – potentially worth many hundreds of billions of pounds and as an unlisted share they can be bought into at just 20p (currently) with vast upside potential (oil industry investment of this type typically returns many hundreds of times your investment) and not only do you get the tax benefits upon investment – when they strike oil and you have rolled over your modest investment into several hundred times uplift – the exit is CGT free so long as you retain your shares for the minimum 3 year EIS period – is this not a perfect win-win for all of us reaping the benefits of the Vodafone bonanza? For more info, http://www.youtube.com/watch?v=AWFqnbs8Q-0

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