It may no longer be summer, but the heat is rising for dividend raises. More companies hiked their payouts last week than in the previous frame, and some of those boosts came from major stocks.
Everyone is familiar with my chosen trio from the period: McDonald's (MCD 0.37%), Microsoft (MSFT -1.27%), and JPMorgan Chase (JPM 2.51%). Here are a few words about their latest dividend bumps.
Image source: Getty Images.
McDonald's
McDonald's is adding a little sauce to its quarterly dividend, lifting it by 7% to $1.01 per share. That's no surprise -- after all, the fast-food giant is a Dividend Aristocrat, one of the rare stocks that have hiked their distributions at least once every year for a minimum of 25 years running.
The company's shares have been on a tear this year, with plenty of justification. Winning initiatives like the all-day breakfast and signature crafted sandwiches have brought customers into the stores. Comparable-store sales rose by nearly 7% on a year-over-year basis in McDonald's second quarter, a very high figure for such a well-established giant. Revenue -- despite a slide due to refranchisement efforts -- and profitability beat estimates.
Operating cash flow, however, has been eroding faster than revenue and profitability. This is a concern, as McDonald's has been spending much of its free cash flow on the dividend. So it's good that the company has cut spending on share repurchases. Given its Aristocratic status and the recent improvements in its business, I think it'll find a way to keep lifting the dividend, but investors should monitor that cash flow situation.
MCD Free Cash Flow (TTM) data by YCharts.
McDonald's will hand out its newly raised dividend on Dec. 15 to stockholders of record as of Dec. 1. At the most recent closing share price, it would yield 2.5%, higher than the current 1.9% average of dividend-paying stocks on the S&P 500; matched against its Q2 profitability, the upcoming distribution has a payout ratio of 59%.
Microsoft
Ever-profitable software megalith Microsoft has elected to hike its quarterly dividend by almost 8% to $0.42 per share.
Since initiating a regular dividend in 2004, Microsoft has raised it once every year. Across that stretch of time, it has risen from $0.08 per share to the present level.
MSFT Dividend data by YCharts.
Then as now, the company is a cash-generating machine. What helps these days is its successful push toward cloud services and its Microsoft 365 software-as-a-service (SaaS). In its most recently reported quarter, adjusted revenue was $24.7 billion, while adjusted earnings came in at $6.5 billion. Both were well up from the same quarter one year ago, and beat analyst estimates.
Cash from operations, meanwhile, crossed the $11 billion mark for the second time in the past year. Free cash flow clocked in at over $8.7 billion, more than enough to take care of both the dividend and the company's latest round of share buybacks.
Microsoft is on a roll, and I can't imagine that momentum will stall. We live in an increasingly cloud-dependent world, and the company has effectively positioned itself to take full advantage of this. I believe the dividend is in fine shape, and we should expect further raises going forward.
The next distribution will be paid on Dec. 14 to shareholders of record as of Nov. 16. The payout ratio would be 43% -- a very sustainable figure -- if we use the upcoming dividend, and the most recent quarterly profit. The new distribution yields a theoretical 2.3%.
JPMorgan Chase
America's largest banking group in terms of revenue, assets, and market capitalization, JPMorgan Chase is about to add some heft to its dividend. The company announced that it will raise it by 12% to $0.56 per share.
JPM Total Assets (Quarterly) data by YCharts.
A domestic economy still on the upswing is favoring the banking sector as a whole, and JPMorgan Chase is reaping the benefits. Thanks to encouraging growth in both loans and deposits, revenue and net profit rose by 5% and 13%, respectively, on a year-over-year basis in its Q2 (the former came in at $25.5 billion, the latter at just over $7 billion).
Can the good times last? After all, the company's key corporate and investment bank unit looks like it'll get hit with its second notable decline in trading revenue in a row due to industrywide trends; it's estimating a 20% year-over-year drop for Q3. Although JPMorgan's many other operations more than compensated for the Q2 trading drop (and are poised to do so again), this development is a concern.
All in all, though, JPMorgan Chase is doing well -- it's not the top dog in the U.S. banking pack for nothing. Meanwhile, the company's Q2 profitability alone would have been nearly enough to pay its dividends for the entirety of 2016. In light of that, a 12% raise looks modest. I'd consider this distribution to be very safe for now.
JPMorgan Chase will dispense its upcoming dividend on Oct. 31 to investors of record as of Oct. 6. It would yield 2.4% at the most recent closing share price, and its payout ratio is a very manageable 31%.
