- Dividend Challengers have dividend hike streaks that range from five to nine years.
- Tech sector Dividend Challengers tend to be more established in their respective industries.
- Entergy offers the highest yield of any Dividend Challenger in the utility sector.
Income investors have a range of strategies at their disposal when it comes to dividends. High-yield stocks. Monthly payouts. Special dividends. More recently, companies such as ConocoPhillips (NYSE:COP) are offering ordinary dividends plus the variable return of cash (VROC) that relates to quarterly performance.
Yet one of the most popular approaches is still finding stocks with growing dividends. Such stocks can generate increasing cash streams for a long-term buy-and-hold portfolio.
Dividend Kings and Dividend Aristocrats get the most attention, and deservedly so. These are companies that have raised their dividends for at least 50 and 25 consecutive years, respectively. With dividend hike streaks of 60-plus years, Coca-Cola (NYSE:KO), Procter & Gamble, and Johnson & Johnson are as steady as they get.
At the other end of the spectrum are Dividend Challengers. Their dividend hike streaks range from five to nine years — track records that aren’t as prestigious but still have investment merit.
In fact, Dividend Challengers may be the perfect match for Millennials and other younger investors. Why? Their dividend growth journey has only just begun. As the profits of these companies build, new investors could have decades to collect increasing cash payouts — and accumulate significant wealth.
More than 400 publicly traded U.S. companies qualify as Dividend Challengers, so plenty of choices exist. Large caps to small caps. Tech stocks to consumer stocks. To help get the ideas flowing, here is a sample platter of three.
1. Restaurant Brands
Restaurant Brands International (NYSE:QSR) has increased its dividend in the last eight years. The Burger King and Tim Hortons parent’s current dividend of $0.55 is paid out quarterly for an annual payout of $2.20 per share. This equates to a 3.5% forward dividend yield, meaning investors that bought the stock today would lock in a 3.5% cash return — on top of whatever share price appreciation takes place over the next 12 months.
It’s yield is as juicy as a Whopper, considering the average consumer discretionary stock yield is just under 2%.
Restaurant Brands has an ex-dividend date of March 21st. This means that investors that buy shares before this date are eligible to receive the next dividend payout. Buying after that date would require that the investor waits for the next batch of fresh fries in June 2023.
2. Skyworks Solutions
Skyworks Solutions (NASDAQ:SWKS) is one of about a dozen technology stocks with dividend growth streaks of five to nine years. Since it is unusual for tech companies to pay dividends, let alone increase dividends, tech Dividend Challengers tend to be more established in their respective industries. They generate solid cash flow that allows them to return cash to shareholders by increasing dividends and sometimes share buybacks.
In the case of Skyworks, the dividend has been increased for eight straight years. Over the last three years, the dividend has been boosted by an average 12.9% to get the current annual payout of $2.48. This gives the stock a 2.2% yield which isn’t too shabby considering Skyworks also has significant growth potential. The company’s semiconductors are used by many long-term growth markets, including mobile phones, wearable tech, connected homes, industrial automation and medical devices.
3. Energy
Entergy Corporation (NYSE:ETR) has bumped its dividend yearly since 2015. The electric power producer recently brought its quarterly dividend to $1.07 per share or $4.28 annually. And with the stock down nearly 20% from its April 2022 peak, the dividend yield has been trending higher. With a forward yield of 4.2%,
Entergy has surpassed the 3.8% dividend yield associated with the average utility sector stock. Despite having the highest share price, it also offers the highest yield of any Dividend Challenger in the utility sector.
Of course, just because a stock has a five-plus year dividend hike streak doesn’t guarantee it’ll continue. The company must have strong financials to back it, and Entergy has just that. Its cash position has roughly doubled over the past year, alongside steady electricity delivery to its 3 million customers.
And although dividend growth over the last five years has been a modest 2.5%, that appears destined to improve. In line with its long-term earnings growth target, management aims to grow the dividend by 5% to 7%. A strategy to replace aging infrastructure and invest in renewable energy projects has Entergy on a powerful path of dividend growth.