Tuesday, April 24, 2012

Incoming Dividend Hikes

I'm expecting dividend hikes from Dow behemoths Johnson and Johnson (JNJ) and Exxon Mobil (XOM) before the end of the week. In 2011 both companies raised their dividend around this time in April.

Most likely Exxon's dividend hike will be in tandem with its earnings release on Thursday, and J&J's dividend hike will be in tandem with its annual shareholder meeting, also on Thursday.

I am expecting JNJ to raise their dividend from 57 cents per quarter to 60 cents per quarter. Their earnings have been less than stellar lately, so anything beyond a 5% hike would be a bonus in my view. Recently announced departure of CEO William Weldon is a big sigh of relief for JNJ shareholders, as he has been, to put it nicely, garbage. I'm looking at JNJ as a 2013-2014 story. Their pipeline is decent and the Synthes acquisition should begin to be material to earnings later this year. A 60 cent dividend would put JNJ at a 3.75% yield, which is fairly attractive when compared along side the likes of Procter and Pepsi, both sporting yields in the low 3s.

Exxon's dividend is much harder to gauge. They current pay 47 cents per quarter, but the company typically favors stock buybacks over dividends, averaging in the mid single digits in terms of long term dividend growth. That being said, I think XOM could be due for a larger than average raise this year. My expectation right now is a 10% bump from 47 cents to 52 cents. Rex Tillerson is a decent CEO, but I really wish he'd focus more on a dividend strategy and less of a buyback strategy. The historical on corporate buybacks indicates most of them are performed at poor times. A 52 cent dividend would put Exxon's yield around 2.4%. This continues to be below its peer group (Chevron and Conoco), but Exxon is really a total return and management execution story. That being said, for older or more yield oriented investors, I would recommend Chevron over Exxon.

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