The SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) is getting a big facelift on September 23 when join the venerable index, replacing Bank of America (NYSE: BAC), Hewlett-Packard (NYSE: HPQ) and Alcoa (NYSE: AA). Those will be the first changes to the blue-chip index since last year when UnitedHealth (NYSE: UNH) replaced Kraft (NasdaqGM: KRFT).
While the $11.9 billion DIA is home to companies with some of the longest dividend increase streaks in the U.S., think Coca-Cola (NYSE: KO), Johnson & Johnson (NYSE: JNJ) and Procter & Gamble (NYSE: PG), its 30-day SEC yield is just 2.27%, or nearly 60 basis points below the yield on 10-year Treasuries. [What New Additions Bring to Dow ETF]
The good news is some Dow dividend hikes could take place before the end of the year and some could come by way of the new additions. Telecom giant AT&T (NYSE: T) last raised its payout in November 2012. AT&T is a member of the Dividend Aristocrats Index, which requires 25 consecutive years of increased payouts, so betting on a dividend hike from AT&T before year-end is not a stretch, notes Jon Ogg for 24/7 Wall Street.
AT&T is 1.71% of DIA’s weight. General Electric (NYSE: GE) “is all but a shoe-in for a higher dividend hike. We would expect this announcement most likely in December,” according to 24/7 Wall Street. GE currently yields 3.2%, but the stock is in danger of becoming the second-smallest member of DIA and the Dow. The Dow is a price-weighted index and once the new stocks join, GE would be ranked 29 in terms of Dow size.
J.P. Morgan Chase (NYSE: JPM) and Walt Disney (NYSE: DIS), which combine for about 6% of DIA’s weight, could also boost their dividends before the end of 2013. Disney’s dividend has more than doubled since 2009 while J.P. Morgan Chase has increased its payout three times since 2011.
Upon entering the Dow, Goldman may feel it needs to keep pace with its fellow index members and become a better dividend payer. “Its $2.00 annualized payout currently is only about 13% of its normalized income, and it yields a paltry 1.2%,” according to 24/7 Wall Street. The bank’s dividend increase earlier this year was just its third since 2006. [Revamped Dow ETF Keeps Quality Tilt]
Nike’s “annualized payout is only about 28% of its normalized earnings per share expected,” and that could make the company ripe for a dividend hike, reports 24/7 Wall Street. Visa could be a candidate as well. The shares currently yield just 0.7%, but the dividend has more than doubled since 2011. Visa will be DIA’s second-largest holding when it enters the Dow.
On Tuesday, DIA got some positive dividend news when Microsoft (NasdaqGM: MSFT) said it will raise its quarterly dividend to 28 cents a share from 23 cents. Microsoft is 1.63% of DIA’s weight. [Tech Dividend ETF: Microsoft Dividend Increase Highlights Rising Sector Payouts]
SPDR Dow Jones Industrial Average ETF
ETF Trends editorial team contributed to this post. Tom Lydon’s clients own shares of GE, Coca-Cola, Microsoft and Procter & Gamble.