Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

3 December Dividend Growers To Buy For 5.4% Yields, 40% Payout Growth

By Contrarian Outlook (Brett Owens)Stock MarketsNov 23, 2021 04:48AM ET
www.investing.com/analysis/3-december-dividend-growers-to-buy-for-54-yields-40-payout-growth-200609223
3 December Dividend Growers To Buy For 5.4% Yields, 40% Payout Growth
By Contrarian Outlook (Brett Owens)   |  Nov 23, 2021 04:48AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

We’ve just hit the best time of the year to roll out one of our most potent dividend “hacks.” Timed just right, it’ll deliver us stout payouts yielding upwards of 5%—and growing triple-digits, too.

Best of all, we can “work” this proven dividend-growth system in just two quick steps, which we’ll dive into now. Then I’ll name three stocks you can buy today to give yourself a shot at “front running” double-digit payout hikes—and swift capital gains, too!

Step 1: Buy Just As A Dividend Hike Is Announced

We’ll start by “timing” our buys just as dividend hikes are announced. That’s a veteran move because a company’s shares almost always rise with its payouts, and there’s often a lag between the announcement of the hike and a rise in the stock.

You can see this set-your-watch-to-it pattern in shares of Texas Instruments (NASDAQ:TXN), a holding of my Hidden Yields service that’s delivered 138% price gains (and 168% total returns) since we bought it in June 2017.

You can see the pattern in action in the chart below, with a slight lag between when the dividend jumps and the stock price follows suit. That’s our window to buy, just as first-level investors are catching on and bidding up the stock:

TXN’s Dividend Telegraphs Its Next Price Move

TXN-Price-Div-Chart
TXN-Price-Div-Chart

This is Step 1 of our dividend-and-price-gain tango—buy shares of reliable dividend growers just before they announce hikes. And because management loves to reward investors near year-end, we have a raft of them to choose from—we’ll look at three specific year-end dividend raisers below.

We’re also perfectly set to profit here because we’re entering three of the best months on the stock market.

Index-Returns-Monthly
Index-Returns-Monthly

According to 1950 to 2017 numbers from the Stock Trader’s Almanac, November and December are the two best months for stock performance, with average gains of 1.5% and 1.6%, respectively. January is historically a strong month, too, with a 1% gain, tying it for fourth spot.

Step 2: Add A Low Payout Ratio For The Strongest Dividend (And Price) Gains

So we’ve got a predictable dividend-hike pattern and seasonality working in our favor. Next we want to look for a reasonable payout ratio, which is the percentage of free cash flow (FCF)—the best snapshot of the cash a company is generating that there is—that’s absorbed by dividends. When it comes to dividend safety, I demand a ratio below 50%—and for maximum dividend growth, the lower, the better.

Now let’s dive into three names that tick our boxes, with a strong likelihood of announcing big dividend hikes in December, plus the financial strength to double (or more!) their payouts in short order.

1. Abbott Dividends—And Shares—Set For A Second Big Pop

Medical device maker Abbott Laboratories (NYSE:ABT)sent a message last December when it delivered the biggest payout hike in its history—a 25% boost that instantly bounced its stock to all-time highs last year:

Dec. 10 Payout Raise Could Top Last Year’s 25% Hike

ABT-Div-Pop-Chart
ABT-Div-Pop-Chart

Over the past five years, Abbott has inflated its dividend by 70%, driving the yield on a buy made then to 4.4% today, far higher than the 1.4% the stock yields now.

This year, you’ll want to circle Dec. 10 on your calendar, as it’s the second Friday of the month—right when Abbott announced its double-digit hike last year. Because a second big boost is likely on the way.

I say that because the company posted solid third-quarter results, with total sales soaring 23.4% on double-digit gains across its divisions. The diagnostics business stole the show, thanks to healthy sales of its BinaxNow and Panbio at-home COVID-19 tests and its ID NOW COVID testing system for clinics and doctors’ offices.

Even without COVID tests, sales still rose a healthy 11.7%. Free cash flow has also been soaring, another factor pacing the stock higher (and resulting in Abbott’s extremely low FCF payout ratio of 33%):

FCF Powers The Share Price—And Our Dividends

ABT-Free-Cash-Flow-Chart
ABT-Free-Cash-Flow-Chart

Finally, don’t be put off by Abbott’s seemingly high P/E ratio of 31.9—it’s actually a bargain in disguise! Last year at this time, the stock traded at a “nosebleed” 60-times trailing-12-month earnings and still delivered that big payout-driven pop we just saw. This year, with an even better valuation, I’m expecting more.

2. A Canadian Bank With A Pent-Up Payout Hike

Canada’s banks are an untapped resource for many US investors, and I’ve always wondered why. For one, they tend to yield more than their American cousins—take Toronto Dominion Bank (NYSE:TD),which yields 3.5% as I write this, compared to 2.4% for JPMorgan Chase & Co. (NYSE:JPM) and a mere 1.6% for Wells Fargo (NYSE:WFC).

TD is Canada’s most “Americanized” bank, with roughly the same number of branches south of the border as in its own country (around 1,100 in the US, compared to 1,085 in Canada).

TD’s Canadian and US businesses are also profiting both from higher trading volumes and strong loan originations. TD is also nicely positioned to profit on the gap between rising yields on the 10-year Treasury note (and in Canada the 5-year government bond, which dictates interest rates on loans it makes to customers, and near-zero overnight rates set by the Federal Reserve (and Bank of Canada), at which banks lend to each other.

The real catalyst is that TD and other Canadian banks have just been cleared by the Canadian government to resume dividend hikes as the worst of the COVID-19 crisis recedes. Given the bank’s long dividend history (it’s been paying dividends since 1857) and strong business performance, we can expect a hike to be announced any day—and it’ll likely eclipse the 7% increase (in Canadian dollars) the bank last announced, pre-COVID.

3. Let’s Gear Up For Our Progressive Special Payout

Our Hidden Yields members will know Progressive (NYSE:PGR) well. The auto insurer uses a sneaky-smart strategy to discern, via an algorithm, if a new customer is worth insuring. If they’re too risky, it tosses out a high quote, giving the company two ways to win: the customer either takes the quote or moves on to (and becomes a problem for!) one of its competitors.

The company applies the same strategy to its payout, yielding $0.10 per quarter, but paying the bulk of its dividend as a special payout that rolls out in early December (or thereabouts). Factor in last year’s special payout and you get a hefty 5.4% trailing-12-month dividend yield. And with an FCF payout ratio of just 37%, Progressive has plenty of room to roll out another healthy “special” this year.

Finally, like TD, Progressive benefits from rising interest rates because it invests its “float” (or the premiums it collects) in safe interest-bearing securities, as claims will need to be paid out at some point.

Progressive’s FCF Powers Its Payout

PGR-Free-Cash-Flow-Chart
PGR-Free-Cash-Flow-Chart

Finally, as you can see above, its cash flow has been growing strongly: FCF per share is up 242% over the past five years, and like dividend growth, is another strong driver of future share price increases.

Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."

3 December Dividend Growers To Buy For 5.4% Yields, 40% Payout Growth
 

Related Articles

3 December Dividend Growers To Buy For 5.4% Yields, 40% Payout Growth

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email