3 Dow Components Give Investors a Raise

While well-known companies like Boeing (NYSE:BA), The TJX Companies (NYSE:TJX) and The Walt Disney Company (NYSE:DIS) have cut or suspended dividend payments at least in part due to the impact of the Covid-19 pandemic, there are numerous other companies that continue to raise payouts to shareholders.

It is one thing to be able to raise dividends when the economy is growing, but I’m more interested in knowing which companies can do so in a difficult environment. As an investor who will rely on income from my investments to fund retirement, I want to add names to my portfolio that have demonstrated the ability to grow dividends under duress.

While past performance is no guarantee of future success, the ability to increase dividends while the economy moves sharply downward is a sign of strength to me. Thus, in this article, we will examine three members of the Dow Jones Industrial Average that recently raised dividends.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Apple Inc. ” data-reactid=”21″>Apple Inc.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Apple Inc. (AAPL) needs no introduction. The consumer electronics giant has a market capitalization of $1.3 trillion at the time of the writing of this article, giving it a valuation that is second only to Microsoft (NASDAQ:MSFT) in terms of size. Apple is most known for its smartphone business, but the company also sells wearables and has a service business through which consumers can purchase apps and music.” data-reactid=”22″>Apple Inc. (AAPL) needs no introduction. The consumer electronics giant has a market capitalization of $1.3 trillion at the time of the writing of this article, giving it a valuation that is second only to Microsoft (NASDAQ:MSFT) in terms of size. Apple is most known for its smartphone business, but the company also sells wearables and has a service business through which consumers can purchase apps and music.

The company increased its dividend by 6.5% for the May 14 payment. This marks nine consecutive years of dividend growth for Apple. Over the last five years, the company has compounded its dividend by a rate of 8.5% per year. Shares yield just 1.1% currently, which is below the average yield of 2% of the S&P 500, but helping to offset this low yield was the stock’s one-year return of more than 51%.

Using the annualized dividend of $3.28 and expected earnings-per-share of $12.32 for the current year, Apple’s payout ratio is less than 27%. This is nearly in-line with the average payout ratio of 26% since 2013. Apple is flush with cash, having more than $94 billion on its balance sheet. In total, the company has $144 billion of total current assets. Illustrating the strength of the business, Apple has generated $66.6 billion of free cash flow over the last year. Dividend payments consumed just 21% of free cash flow during this time.

Apple trades at ~$310 per share, giving the stock a forward price-earnings ratio of 25.2. This is in excess of the stock’s 10-year average valuation of 13.7 times earnings.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="International Business Machines Corporation” data-reactid=”26″>International Business Machines Corporation

International Business Machines Corporation (NYSE:IBM), known more commonly as IBM, is a leading supplier of technology and business services, software and systems hardware. After acquiring Red Hat last summer, IBM’s cloud business is now the second largest contributor to revenue for the company.

IBM went nearly six years with declining year-over-year revenue growth before reversing that trend in late 2017 and early 2018. Of the last eight quarters, however, only once has IBM managed to grow revenue from the previous year. The company trades with a market capitalization of more than $109 billion.

Despite this struggle to grow the top line, IBM has now achieved Dividend Aristocrat status. With a 0.6% increase for the June 10 payment, IBM now has 25 consecutive years of dividend growth. The company’s dividend has increased at an annual rate of 8.4% over the last decade. Investors buying IBM today can lock in a 5.4% dividend yield, which is much more attractive than that of the market index. The average yield for the stock was 3% over the last 10 years. The yield helps to make up for the 12% decline that shares have seen over the last year.

The analyst community on Wall Street predicts that the company will earn $11.23 per share in 2020. With an annualized dividend of $6.52, IBM’s earnings payout ratio is 58%. This is higher than the company’s 10-year average payout ratio of 34%, but not to a point where I am concerned about future dividend growth. IBM ended the first quarter of 2020 with $12 billion in cash and $39 billion in total current assets on its balance sheet. The company’s free cash flow was $11.5 billion over the last year, with dividends consuming just 50% of this total.

Shares of IBM closed on Friday at $123 per share, which equates to a price-earnings ratio of 11 when using expected earnings-per-share for the year. The stock has had an average valuation of 10.8 times earnings since 2010.