When it comes to investing, there's no such thing as a sure thing. But sometimes you'll discover opportunities that are as close to a sure thing as you're likely to find -- and anticipating those opportunities can be quite profitable.
You'll find one such opportunity among one of the hottest sectors in the stock market lately: dividend stocks. In particular, being able to anticipate which stocks are likely to increase their dividends -- and when those dividend increases will take place -- can give you a leg up on other investors. And with companies that have consistently paid higher dividends year in and year out for decades, you can be reasonably confident that they'll deliver this year as well.
Betting on aristocrats
Here at the Fool, we've talked a lot lately about a group of companies known as the Dividend Aristocrats. Every year, Standard & Poor's compiles a list of select stocks that have increased their dividend payments to shareholders at least 25 years in a row. As you'd imagine, only a small group of stocks makes the list: This year, you'll find just 42 qualifying Dividend Aristocrats.
Dividend investors pay a lot of attention to companies on the Dividend Aristocrats list, and with good reason. It takes a lot to maintain a history of rising dividends for a quarter century, especially as the economy moves from boom times to recessions and back again. The companies that make the cut do so by demonstrating fiscal discipline and shareholder-friendly management styles. Moreover, the fact that a company can keep coming up with the cash to pay shareholders year in and year out reassures its investors that its business is solid and should be able to weather moderate financial storms.
Coming soon: more money
When you look more closely at the list, you'll realize that some familiar patterns emerge. Specifically, most of the companies on the list tend to raise their dividends around the same time every year. While some wait until late in the year to make a dividend hike, keeping investors in suspense as to whether they'll extend their streaks another year, others don't waste any time and announce higher payouts at some point during the first quarter. Based on the behavior of the past few years, here are some of the stocks that will most likely raise their dividends between now and the end of March:
Record Date of Last Dividend Increase
Archer Daniels Midland
Source: Yahoo! Finance, company websites.
Usually, companies declare dividends a few weeks before the record date of the distribution, so you can expect to hear from these companies even sooner than this.
Even this small subset of companies shows you some important things about the Dividend Aristocrats. First of all, just because a company has a long streak of increasing dividend payouts doesn't necessarily mean that it has a high yield. Although you'll find some high-yielding stocks on the list, quite a few others pay between 1% and 2% -- and a few pay even less than that.
Second, there's no minimum amount that a company has to increase its dividend in order to extend its streak. For instance, Consolidated Edison raised its dividend by just half a penny last year, representing less than a 1% increase. Big jumps aren't unprecedented among the group, but they're also not common.
Finally, some stocks on the list have payout ratios that are dangerously high, suggesting that streaks may come to an end in the next few years. Pitney Bowes is one such stock, currently paying 92% of its earnings in dividends. With the company famous for postal meters in danger of obsolescence as traditional mail wanes in importance, its dividend may be a future casualty of a slowing business.
As investors discovered during 2008 and 2009, you can't be 100% positive that higher dividends will come. But with the economy on the rebound, it's likely that these companies will find a way to extend their payout streaks one more year -- so be ready.
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Fool contributor Dan Caplinger always likes bigger payouts. He doesn't own shares of the companies mentioned in this article. 3M is a Motley Fool Inside Value selection. Sherwin-Williams is a Motley Fool Stock Advisor pick. 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 Fool's disclosure policy loves turning the calendar.