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The Federal Reserve recently announced it decided to extend Operation Twist, a program where the central bank sells short-term securities and buys long-term securities. The Fed also reiterated its stance to keep interest rates exceptionally low for at least through late 2014. While the moves are aimed at boosting the economy, it is another blow to those seeking yield.
The zero interest rate policy environment is making it harder for investors and savers to earn a decent return on their money. As a result, many are seeking companies that pay a healthy dividend. Last year, two-thirds of the companies in the S&P 500 raised their dividend. Year-to-date, almost 40 percent of the S&P 500 members have increased their dividend. Organizations across various industries are attempting to return value to shareholders as slowdown fears continue to cause volatile swings in the market. Companies such as PetSmart Inc. (NASDAQ:PETM), Caterpillar Inc. (NYSE:CAT) and Target Corp. (NYSE:TGT) have all boosted their dividends by double-digit percentage points this year.
Joeseph Keating, Executive Vice President and Chief Investment Officer for CenterState bank, believes the trend in hiking dividends will continue. In an interview with CNBC, he explained, “If you think about the yield and the rate environment we are in today, paying a healthy dividend is a tremendous investor courting technique by your big brand name companies that have good cash flows and can afford to pay a dividend and hopefully grow that dividend over time.”
He cites Republic Services Inc. (NYSE:RSG), Norfolk Southern Corp. (NYSE:NSC) and Lockheed Martin Corp. (NYSE:LMT) as companies that should be raising their dividends in the fourth-quarter. Keating also recommends McDonald’s Corp. (NYSE:MCD), which currently pays a dividend north of 3 percent and has raised its dividend for the past 35 years. “It’s a Europe play also. McDonald’s has lost $10 or $12 recently off its share price because of the concerns on its exposure to Europe. Its a great entry point into McDonald’s,” Keating said.
The technology sector also provides strong dividend opportunities for investors. Microsoft Corp. (NASDAQ:MSFT) currently yields 2.7 percent and has increased its dividend for the past 6 consecutive years. Last September, the Dow component hiked its dividend payment by 25 percent, representing its biggest jump in eight years. Earlier this year, Apple Inc. (NASDAQ:AAPL) announced it would begin paying shareholders a quarterly dividend of $2.65 per share in its fiscal fourth-quarter. It is the company’s first dividend in more than 15 years.
However, investors should be cautious on tech names that face large headwinds from competition. For example, Dell Inc. (NASDAQ:DELL) recently initiated its first dividend in company history, but its business has been struggling. Shares are down 16.61 percent year-to-date and the firm recently announced plans to cut $2 billion over the next three years from supply chain streamlining and reducing sales support staff.
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