Somebody alert Carl Icahn: in assessing the dividend outlook for 2014, a new report has named the billionaire’s favorite Twitter-target –Apple AAPL -2.19%, of course – as the year’s likely dividend leader, though the tech company will be closely followed by Exxon Mobil, AT&T T -0.43% and Bank of America BAC +1.93%among others.
According to financial information firm Markit’s 2014 U.S. dividend outlook report, 422 of the S&P’s 500 stocks will pay $352 billion in dividends this year, a participation rate that’s a shade higher than the 417 dividend-paying stocks as of mid-December 2013 (according to FactSet) but a payout rate that would mark an 8.9% increase over 2013′s total dividend payout. 2014′s average expected dividend payout ratio, or the percentage of earnings paid in dividends to shareholders, is 35%, which Markit says is an increase over 2011′s 27% but flat compared to 2013 and well under the S&P’s 50% historical average.
Markit forecasts that of all the companies paying out dividends, Apple will pay out the most: $11.8 billion, for a nearly 15% increase over 2103′s payout and a dividend payout ratio of 30%. The only question with Apple, Markit says, “comes down to how fast and aggressive its share repurchases occur in the upcoming year especially given activist pressure to increase the program.”
Coming in just under Apple is Exxon Mobil, which Markit expects will pay out $11.7 billion in 2014, a 36% payout ratio and an 8.5% increase over its 2013 payout. Together with Chevron, Exxon will help account for 46% of total forecasted dividends in 2014.
Also making a dividend splash in 2014 will be AT&T, which Markit predicts will only increase its dividend by 1.4%, to $9.7 billion in funds paid out in 2014, but will have a whopping 69% payout ratio. “AT&T and Verizon are among income investors’ favorite picks for their history of steadily growing dividends. We expect both to raise dividends to 46 cents per share and 55 cents per share respectively in 2014, which are in line with their historical distribution pattern,” Markit writes, noting that combined with Verizon, AT&T will help comprise 87% of dividends for the entire telecommunications sector this year.
Widening the view to a sector outlook, Markit says that banking is poised to see significant dividend growth, and that bank dividends will increase 23%, a larger increase than every other sector except automobiles. Leading the charge will be Bank of America, JP Morgan, Wells Fargo, Citigroup and Bancorp, which together could account for as much as 85% of the sector’s growth. Citi and BofA, in particular, have a lot of room to grow this year, as neither sought a dividend increase in their 2013 stress tests.
“[We expect] both banks would have sufficient capacity to increase their dividends following additional quarters of improvements. Furthermore, both banks have done a good job managing capital levels, particularly in advance of the Basel III capital requirement rules,” Markit says, forecasting that both City and BofA will increase their dividends from one cent to five cents per share in the second quarter of 2014.