For the last few years, investors have had a rough time with the stock market, as the economy is at a slow-growing rate. However, investors are seeing solid increases in the telecommunications and technology industries, which is not surprising in the technologically advanced world we live in. I have come to the conclusion that pointing out a few stocks in this field - Cisco Systems, Inc. (CSCO), Intel Corporation (INTC), Microsoft Corporation (MSFT), Applied Materials, Inc. (AMAT) and International Business Machines Corp. (IBM) - may help you determine your investment strategies for the year. As dividends are the primary way to reduce instability in the midst of limited capital appreciation, I offer my opinion as to whether these five stocks will boost dividends in 2012.
Cisco Systems, Inc.
Cisco chief executive John T. Chambers has declared Cisco, "much better positioned than most of our competitors." The question is, what does this mean for the shareholders when it comes to dividends, if anything? The company is a consistent earner, producing a profit margin of slightly below 16%, with an operating cash flow of just under $11 billion, Cisco dividends yield approximately 1% with a payout ratio of 10%. Shares of Cisco have varied slightly this past year, and are currently trading around $20, with a 52-week low of just over $13.
Cash dividends only began being paid in March of last year at a price of $0.06, and has stayed at that rate until January of this year, where the board approved an increase to $0.08 per share for April payouts. While the company is in a good position, I do not believe dividends will increase by much by fourth quarter, due to being a new dividend payer. With that said, it is important to consider that Cisco has obtained solid consistent earning, providing shareholders with higher dividend payouts by end of year.
Intel is a company that has become a leading producer of computing equipment. Intel continues to be a leader in their industry, and good things should be expected in 2012 overall. In fact, this year Intel expects to introduce new products to their consumers, including a Motorola (MMI) partnership to produce smartphones and Ultrabook systems.
Currently, shares of Intel trade at just under $27, with a quarterly dividend payout currently $0.21, which is an increase from $0.18 per share. This is one of the highest paid dividends per share compared to their competitors. It is my opinion that Intel dividends will remain the same for the entire year, due to the increase it has already made.
With that said, Paul Otellini, Intel President and CEO reported that Intel is excited about the upcoming "product and technology pipeline for 2012," which will increase growth opportunities. This could likely increase dividend shares for stockholders. If that happens, which is possible, it will only be a slight increase. After all, dividends were already increased by $0.03.
According to Business Insider, Microsoft will not be increasing the dividend in 2012. However, I disagree and believe that Microsoft shareholders could see a dividend boost this year. This dividend increase will mostly be due to the newly created partnerships between Microsoft and Nokia (NOK) and Microsoft and Baidu.com (BIDU), not to mention its acquisition of Skype.
With Microsoft creating a partnership with Nokia, another highly respected company, the only way is up. The same is bound to happen with the acquisition of Skype, one of the most widely used internet-based phone systems. Besides, Microsoft has already increased the dividend to $0.20 per share, which is a four-cent increase from the last two quarters.
While the acquisition is going to cost Microsoft money, decreasing cash flow, the new partnership with Nokia, along with its Windows 7 software successfully supporting the company, Microsoft will continue to climb to the top, with increased net profit resulting. Once the net profit increases, it is only automatic that the stock prices will rise, and Microsoft would be willing to increase dividend payouts. However, due to the acquisition being recent, I do not expect an increase before the third quarter of 2012.
Applied Materials, Inc.
I agree with Emmanuel Daugeras when he wrote that with shares less than $13, Applied Materials is traded below its value. Although not as quick as its competitors, Applied Materials has increased in stock price over the last ten years, and is now trading for just under $13. Shareholders have been receiving dividends for the last seven years, and these have increased each year, with the exception of 2011.
Unfortunately, I do not believe dividends will increase again this year. Even though the company has built a partnership with Intel, the stock is down approximately 24%, which prevents an increase in dividends. If the process of Intel using Applied Materials as a key component in their new inventions this coming year results in stock increases, this could change. However, I do not expect an increase of much, or until at least the fourth quarter.
International Business Machines Corp.
Lastly, I want to discuss IBM, which I believe will boost dividends in 2012. IBM has been a leader in the technology industry for years, and was one of the few companies that came through the recession with good numbers. The current dividend payout for IBM is $0.75 per share. While it has remained at this price for the last year, I still expect an increase. The current price per share of stock of IBM is at a little less than $200, which is only about 1% less than the 52-week high.
Analysts who reported to Capital IQ believe that IBM will continually grow its earning within the next five years at around 11% per annum. Even though I agree, this process is a long-term one, which could result in only slight dividend increases. With that said, I believe IBM is a strong company, whose stock will continue to rise, allowing for a dividend increase after the third quarter of 2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.