Dividend investors scored big in 2017.
A record $1.25 trillion in dividends was paid globally last year. The United States led the charge. S&P 500 companies paid a record $419.8 billion in dividends.
More dividends, in greater quantity, are in store in 2018.
New dividend records will emerge before the year is through. The Tax Cuts and Jobs Act passed in December guarantees it.
The new tax laws drop the top corporate income-tax rate to 21% from 35%. With the lower income-tax rate, more earnings will funnel into the cash account. A virtuous circle will ensue.
More cash on hand will drive more cash-generating investment. More cash on hand, and more cash flow, will drive more dividend payments.
Dividend investors are already benefiting from the virtuous circle conjured by the new tax laws.
S&P 500 companies distributed record dividends in the first quarter of 2018. These companies paid $109.2 billion in dividends through the first three months of the year.
Huge dividend increases abound: AbbVie (NASDAQ: ABBV) increased its regular annual dividend 35%. Best Buy (NYSE: BBY) nearly kept pace. It increased its dividend 32%. Home Depot (NYSE: HD) increased its dividend in a double-digit increment –16% this go-around.
Relatively speaking, the increases are huge. Most annual increases fall in the 5%-to-9% range.
They could be better, though. Best Buy’s 32% dividend increase still leaves the annual dividend yield at a miserly 2.5%.
One tax-law provision – one few Americans know – will enable investors to collect even more dividends to generate even higher yield. The provision enables corporations to pay “liberty checks.”
“Liberty checks” are one-time dividends 200%, 300%, and even 1,000% times larger than regular dividends. Yields of up to 20 times the market average are on offer in these liberty check payments.
Section 965 is the tax-code provision, and it opens the door for corporations to repatriate billions — hundreds of billions — of dollars. These are dollars are stored in foreign accounts to avoid paying formerly high corporate-income taxes.
Section 965 mandates that corporations pay a repatriation tax of 15.5% on cash held in foreign accounts. The tax must be paid whether the cash is repatriated or not.
If you must pay, why not repatriate the cash? A lot of corporations will repatriate. They’ll repatriate a lot of cash.
Apple (NASDAQ: AAPL), Alphabet (NASDAQ: GOOGL), and Microsoft (NASDAQ: MSFT) alone sit atop a mountain of foreign cash. Their aggregated cash accounts approach $500 billion.
Moving the mountain is one thing, investing what’s been moved is another. Apple, for instance, will find it impossible to invest all its newly repatriated cash. The cash exceeds the investment opportunities.
Share buybacks are one option to reduce the cash surfeit. UBS estimates that Apple could purchase up to 25% of its outstanding shares with its repatriated cash.
With Apple shares trading at a record high and with the P/E multiple approaching 19, the buyback directive is a misdirected one. I expect Apple to direct less cash toward buybacks and direct more cash toward dividends.
I’ve run the numbers. Apple could afford a one-time liberty check payment five times its regular dividend.
Apple’s not alone. Alphabet, Microsoft, and other large cap-tech companies could afford similar one-time liberty check payments.
Many corporations — smaller and less promoted in the financial press – find themselves similarly cash-flush. What’s more, these obscure cash-flush corporations could deliver even greater liberty check payments than the popular behemoths.
I’ve already unearthed 34 of these liberty check payments. One corporation distributed a “liberty check” that yielded 41% on investment. That’s more than 20 times the dividend yield of the S&P 500.
My latest liberty check find offers a dividend yield 10 times the market yield. The dividend and its yield are available today.
But there’s a catch.
You’ll need to act fast. The opportunity to collect your 10X liberty check expires at the end of trading today.