There’s a lot uncertainty in today’s market, but one thing is guaranteed. It’s as sure as the sun rising again tomorrow … The new tax reform law is about to cause an avalanche of money to rush into a very specific kind of investment in the weeks and months ahead — dividends.
As you probably know, the new tax law slashed the corporate tax rate from 35% to 21%.
According to Forbes, the corporate tax cut will save U.S. corporations $600 billion in taxes over the next decade. That’s $600 billion not going to Uncle Sam that companies will now put to use elsewhere.
That’s a lot of money, but it’s not even the biggest piece of the big tax reform cash avalanche that’s coming.
According to the Citizens for Tax Justice, the total amount currently being stashed overseas by Fortune 500 companies in order to avoid paying U.S. corporate taxes tops $2.6 TRILLION!
Just look at some of the names on this chart … Apple (NASDAQ:AAPL), Coca-Cola (NYSE:KO), Amazon (NASDAQ:AMZN), General Electric (NYSE:GE), Microsoft (NASDAQ:MSFT), Gilead (NASDAQ:GILD), Intel (NASDAQ:INTC) … we’re talking about big, blue-chip companies hiding billions overseas. But the new tax law holiday lets companies bring back that cash at a 15.5% tax rate.
With $2.6 trillion sitting overseas, that’s potentially a $400 billion windfall for Uncle Sam …
And a more than $2 TRILLION bonanza for investors as companies put all that repatriated cash to work.
So where will it go?
Well, politicians and the media will tell you that bringing this money back will help fuel investment and create jobs.
But the pundits and the politicians will be wrong (yet again).
How You Can Grab Your Share of the $2.6 Trillion Tax Cut Bonanza
See, the tax holiday isn’t a new concept.
Every few years, Washington thinks it would be a great idea to allow this money back in at a lower rate to spur growth and increase wages.
In 2004, after President Bush delivered big tax cuts, he and Congress created a tax holiday.
Companies — many of the same ones sitting on big overseas profits today — were allowed to bring that cash back at an effective tax rate of only 3.7%. It spurred companies to bring $362 billion back to the U.S …
BUT almost none of it went to American jobs, wages, R&D or infrastructure.
Instead, according to studies by the National Bureau of Economic Research and the Wharton School of Business, this money was used to significantly increase payments to shareholders in the form of dividends and buybacks.
The studies proved that the increase in repatriated profits matched the increase in dividends and buybacks almost dollar for dollar.
And despite Washington’s best intentions, that’s exactly what will happen this time around, too.
Sure, some of that $2 trillion of corporate cash will go to workers.
Companies like American Airlines, Comcast, Bank of America and Disney have announced one-time bonuses for some workers. Walmart and Wells Fargo have announced they are raising their minimum wage to $15 an hour.
These announcements are great PR for these companies. And it’s a smart way to get on President Trump and congressional Republicans’ good side by giving them “proof” that their tax cuts are helping every day Americans.
But the reality is that this is small potatoes. The bonuses and wage increases announced only impact about 3.5 million of more than 125 million U.S. workers.
And the amount of money corporations will spend on wage increases and bonuses account for a drop in the bucket of total tax savings.
According to a report by Morgan Stanley, only 13% of companies’ tax savings will go to workers.
Where will the rest go?
A whopping 43% will go to stock buybacks and increasing dividends.
Bloomberg says that closer to 60% is going to buybacks and dividends. That’s still $1.5 TRILLION about to flood into dividends and stock buybacks.
That means this will be the largest investor windfall in history.
Before the ink was even dry on the new tax law in December, companies announced a slew of new stock buybacks …
Boeing announced an $18 BILLION buyback. Home Depot (NYSE:HD) committed to $15 billion. Honeywell (NYSE:HON) authorized another $8 billion for share buybacks. Bank of America (NYSE:BAC) said it will buy an additional $5 billion of its own stock.
Then right out of the gates in January another 61 companies announced $88 billion more in buybacks.
Wells Fargo (NYSE:WFC) announced a giant $22.6 BILLION share buyback plan.
Amgen (NASDAQ:AMGN), $10 billion.
Visa (NYSE:V), $7.5 billion.
Ebay (NASDAQ:EBAY), $6 billion
Lowes (NYSE:LOW), $5 billion …
In February, Cisco (NASDAQ:CSCO) announced a massive $25 million buyback plan. Applied Materials jumped in to the tune of $6 billion.
In May, American companies announced a record $201 billion in stock buybacks and cash takeovers.
Apple accounted for half of that, announcing that it would buy back $100 million in stock.
I could go on and on and on.
We are looking at the biggest buyback announcements ever recorded so early in the year.
And this massive spending spree is likely just the start. JP Morgan forecasts an $800 billion buyback boom thanks to tax reform.
Buybacks are pouring $4.8 billion a DAY into certain stocks.
And that number will grow in the weeks ahead. Here’s why these buybacks matter …
When a company buys back its own shares, it reduces the number of shares in the market.
That’s good for shareholders for several reasons.
First, no matter what else happens in the market, buyback programs also mean these stocks have a guaranteed flow of buying pressure as they snap up shares of their own stock.
And companies love to buy their shares when they are cheap. So these stocks can see an influx of buying anytime their stock is down, which acts as a floor under the stock price.
Second, reducing the number of shares available means the earnings per share goes up.
AND the P/E ratio (price-to-earnings) goes down.
Both of those things make the stock more attractive to investors.
So new investors pour more money into the stocks, sending the share price higher.
Massive Dividend Hikes Ahead
In addition to pouring their tax savings into stock buybacks, companies plan to return a big chunk of their tax savings and cash stash to shareholders through dividends.
Since the tax bill became law, a slew of companies have announced they were raising their dividends.
Constellation Brands (NYSE:STZ) announced a 42% dividend hike.
Boeing (NYSE:BA) announced a 20% dividend hike.
MasterCard raised its dividend 25%.
First Horizon (NYSE:FHN) raised its dividend 33%.
Sabine Royalty Trust (NYSE:SBR) jacked its payment 26%
Meridian Bancorp Inc. (NASDAQ:EBSB) a 25% increase.
Yum Brands (NYSE:YUM) a 20% increase.
Dividend increases for the first quarter came in at a whopping $19.9 billion. That’s more than double the same time last year.
Here’s why these dividend increases matter …
Obviously, anyone who owns these stocks will see bigger dividend checks.
And not only will shareholders be rewarded with more income … higher dividends will make select dividend stocks even more attractive, causing more investors to pour in, driving these stock prices even higher.
But there’s another reason we want to buy stocks that are increasing their dividends …
These Are the #1 Performing Stock for 30+ Years Running
Over the last 30+ years, there is one type of stock that has beaten all others, in good markets and in bad …
Stocks that raise their dividends.
These “dividend growers” have outperformed non-dividend paying stocks by a huge margin.
As you can see from the chart below, a $10,000 investment in non-dividend paying stocks in 1972 would be worth just $30,136 now.
But that same $10,000 in stocks that are increasing their dividend would be worth a whopping $630,024.
That’s an extra $600,000 in your nest egg by investing in dividend growers.
A rising dividend alone isn’t enough to make a stock a good buy.
But I’ve carefully selected nine stocks that are not only increasing their dividend, but also sport INCREDIBLE fundamentals like rising cash flows and solid earnings growth.
- A true dividend aristocrat has paid dividends for 75 years straight. It has raised its dividend 250% in the last 5 years. It just announced a 20% hike (on top of an $18 billion stock buyback). And on top of all that, the stock soundly beat the market last year. It’s one of my favorite defensive plays when the market gets choppy.
- A financial stock that is giving shareholders a special bonus—$1.50 per share special dividend. That’s on top of a 27% boost in its already generous 3% dividend.
- A tech stock that just announced a 24% increase to its already healthy dividend, along with a $6 billion buyback program. With just a 56% payout ratio and a policy to return 100% of free cash flow to shareholders, analysts like Jefferies expect another dividend hike soon.
- And I have selected a REIT with a juicy 11.2% yield that has more than tripled its dividend over the last five years, even while other REITs cut their payments.
Those are just a few of the stocks I’ve hand-picked for readers of my Growth Investor research service.
You can get their names and my full analysis on each one in my new report, 9 Rising Superstars: A-Rated Stocks with Growing Dividends.
There is a massive, unstoppable flood of money about to pour into the market. You want to own the stocks that will attract the lion’s share of that money.
I’m very confident this is one of the biggest money-making opportunities you’ll see in years. That’s why I’ve produced an entire online presentation on it. You can view this presentation, learn more about this opportunity, and learn how to access my list of “super elite” dividend paying stocks by clicking right here.
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