The Dow Jones Industrials (DJINDICES:^DJI) are well regarded for their dividend strength, as all 30 components in the Dow pay dividends on a regular basis. Yet even though many of the strongest Dow stocks have built impressive track records of raising their dividend payments at least once a year for decades, several stocks have kept their payouts extremely low in comparison to the earnings they bring in. Let's take a closer look at four stocks -- Goldman Sachs (NYSE:GS), American Express (NYSE:AXP), Visa (NYSE:V), and UnitedHealth (NYSE:UNH) -- to see why their dividends are as low as they are and whether payout hikes could be on the way.
One obvious thing to notice about these four stocks is that they're all tied to the financial industry in some way. As a result, they're subject to various types of capital restrictions, with Goldman and American Express both notably having undergone stress testing from the Federal Reserve in order to measure the adequacy of their capital stores.
Because of this regulatory oversight, many of these Dow stocks have kept their dividend yields low despite having the earnings to back up bigger payments. Goldman, for example, has earned more than $15 per share over the past year, but its $2.20-per-year dividend payout equates to just a 13% payout ratio. Goldman recently had its latest capital proposal approved by the Fed, but the Wall Street giant hasn't yet revealed what that will mean for its dividend. Even a substantial increase would likely leave Goldman's dividend yield below the Dow's average: The stock currently yields just 1.3%.
American Express has been a bit more generous, with a payout ratio of 18%. But its dividend yield is just 1%, and that's a big part of why the company has boosted its dividend by 13% as part of its capital-plan proposal, which the Fed approved.
Even though AmEx's annual dividend will climb above the $1-per-share mark, though, yields will remain at a relatively low 1.2% even after the increase.
Beyond the banks
Visa and UnitedHealth also have similar payout ratios in the 18% to 19% range, and both companies have been notoriously stingy with dividends. Visa currently yields just 0.7%, while UnitedHealth's 1.4% yield comes after a few years of dramatic increases -- it paid next to nothing to shareholders as recently as 2010.
The tension for all of these companies involves whether dividends are the best use of shareholder capital. For American Express and Goldman, shoring up their capital bases has been a high priority, while the perceived tax advantages of using share buybacks instead of dividends has also played a major factor. Visa, meanwhile, has had a big growth opportunity in expanding its worldwide network and seeking to improve its technology to handle the mobile-payments revolution, so it's easy to understand why the fast-growing card giant would want to retain more capital for internal business use. Similarly, UnitedHealth has been looking not only at Obamacare domestically, but also at various international opportunities, with its purchase of Brazil's Amil being a potential first step toward a more extensive global presence.
Even though all four of these Dow stocks could double their dividends without harming their cash flow statements, it's unlikely that they'll do so. With so many potential uses for that capital, these companies won't disappoint investors by sacrificing long-term growth for short-term rewards.
9 Rock-Solid Dividend Stocks You Can Buy Today
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends American Express, Goldman Sachs, UnitedHealth Group, and Visa. The Motley Fool owns shares of Visa. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.