Yahoo Finance 7 Dividend Stocks to Benefit From Trump Tax Changes
Cash in on Trump's tax plan.
President Donald Trump has pledged to change the tax code to encourage U.S. multinational companies to repatriate the estimated $2 trillion-plus in cash being held abroad. Assuming this proposal passes, some of those companies are expected to put the cash to work by paying or raising dividends, says Henry To, chief investment officer at CB Capital Partners in Dallas. "That was certainly the case with the 2004 tax holiday, when about $300 billion were brought back from foreign subsidiaries of U.S. corporations as a result," To says. Here is a look at seven stocks that could increase dividends if the tax break is enacted.
Apple (ticker: AAPL)
The tech giant holds $230.2 billion of its cash, or 94 percent, in overseas accounts. If Apple can repatriate earnings, the company could divert some for research and development and merger-and-acquisition activity, says Eric Ervin, CEO of Reality Shares in San Diego. "Apple's current yield is about 1.7 percent," Ervin says. "They haven't historically increased the dividend as much as people would hope for or expect given how much cash they have. But, Apple will continue to grow their dividend, especially if there is more cash available in the U.S. for them to do so."
Microsoft Corp. (MSFT)
Microsoft stashes $110 billion of its foreign profits overseas to avoid the current 35 percent corporate tax rate. If Trump's proposal passes to allow companies to repatriate earnings with a one-time 10 percent tax rate, the firm could be encouraged to bring money back to domestic shores. Microsoft has been paying and increasing its dividend for years, Ervin says. A tax break could spur a larger dividend. "The current dividend yield is almost 2.5 percent, which is above the S&P 500 average yield," he says. "Given the company's stability and above-average yield, Microsoft is a good income stock for investors."
Pfizer (PFE)
Pfizer has around $80 billion of overseas cash, To says. It has a 3.8 percent yield, with about $7.6 billion in cash dividends each year. Repatriating the overseas cash will give Pfizer leeway to boost its dividends, To says. "Pfizer could easily increase its annual cash dividends to over $10 billion. I especially like Pfizer as its drug pipeline has consistently brought in strong cash flows year in and year out," To says. "Pfizer will lose some cash flows due to the Viagra patent loss this year, but it is already through the worst of its patent cliff. I consider the company a value investment."
Cisco Systems (CSCO)
Cisco has more than $60 billion of overseas cash that could be used to increase its cash dividends, To says. Cisco's stock has a 3.4 percent dividend yield, with the company paying about $5.3 billion in cash dividends each year. The repatriation will allow Cisco to increase its annual cash dividends by as much as 50 percent, To says. "I also like Cisco as the IT spending cycle is improving," he says. "According to Goldman Sachs' December 2016 IT survey, global IT spending intentions have rebounded to all-time highs, with strong spending projected across the areas of storage, networking and PCs."
Exxon Mobil Corp. (XOM)
Exxon Mobil has more than $50 billion of overseas cash that it could repatriate to increase its cash dividends, To says. Exxon Mobil's stock has a 3.6 percent dividend yield, with the company paying about $12 billion in cash dividends each year. "A repatriation of Exxon Mobil's overseas cash will allow the company to bump up its dividend yield to over 4 percent. I like Exxon Mobil because the company has historically enjoyed the best returns out of all major integrated energy companies. I expect Exxon Mobil's earnings to grow into its valuation as global oil and natural gas prices continue to recover," To says.
PepsiCo (PEP)
PepsiCo has $40 billion of overseas cash that it could repatriate to increase its cash dividends, To says. The firm's stock has a 2.8 percent dividend yield. Repatriating its overseas cash will allow the company to increase its annual cash dividends about 25 percent, To estimates. "This will bring Pepsi's annual dividend yield to around 3.5 percent," he says. "I like Pepsi because it is an iconic brand name, with strong recognition and growth coming from underlying brands such as Frito-Lay, Mountain Dew, Gatorade, and Tropicana. Pepsi is projected to experience sales growth of 6 percent year over year during the fourth quarter of last year."
Amazon.com (AMZN)
Amazon is another company with cash reserves stashed overseas but does not currently pay a dividend, Ervin says. "Right now the company is spending a lot on R&D, but a cash repatriation plan from President Trump would likely catalyze the company to initiate a dividend payout," he says. "Stocks in the consumer discretionary sector typically have an average yield below the S&P average. If Amazon were to start paying dividends and match their sector yield, it could be below the S&P average yield. Nonetheless, Amazon still could very well be a good choice for income investors."
More From US News & World Report
