We’re entering the home stretch of the year. Last month, I pointed out that the fall season is one of the best times for dividend hikes. And it will be interesting to see which companies announce dividend hikes in this challenging environment.
The reason for that is simple. Dividend hikes are the ultimate barometer test for stocks. If you could only have one metric by which to evaluate the overall health of a company, you could do a lot worst than dividend raises.
As Chief Strategist of High-Yield Investing, searching for stocks that are set to put more cash in your pocket is part of my job. Each month, I flag these stocks first for my premium readers so that they can research them and get a head start. Then, I share them with the public. Ideally, I’m looking for hikes that could happen over the next four to six weeks. I also highlight noteworthy special distributions on the horizon.
(Side note: we typically see a slew of special dividend announcements toward the end of the year. These typically don’t get a lot of coverage in the financial press, but my staff and I are on top of it. So stay tuned…)
We don’t do this just for fun. In a perfect scenario, we find great ideas for consideration in our premium portfolio… Companies posting outsized double-digit increases, and reliable dividend-payers that have been steadily growing payouts for a decade or more.
This month, I have three stocks I’d like to highlight. So if you’re looking for a potential addition to your income portfolio, consider looking at these names further…
2 Upcoming Dividend Hikes
1. McCormick (NYSE: MKC) – Want to spice up your portfolio? Try this packaged foods vendor, whose products are found in millions of kitchen pantries in over 160 countries worldwide.
This is the corporate parent behind popular brands such as Lawry’s, French’s, Old Bay, and Zatarain’s. The product portfolio spans everything from barbecue sauces and marinades to cornbread mix. But the company is best known for its full line of spices, which receive prominent placement on just about every supermarket shelf nationwide.
Add it all up, and the company rakes in more than $6 billion in annual sales across 170 countries. Regardless of economic cycles or interest rates, demand for food tends to be steady. That explains why MKC has been able to raise dividends for 36 straight years – an impressive streak that dates back to 1987. That track record was unscathed by Covid, with the company announcing a healthy 9% bump from $0.34 to $0.37 per share last November.
McCormick is capitalizing on the secular trend of increased at-home meal preparation, spurred partly by pandemic lockdowns. The company is still grappling with inflationary pressures and supply chain issues, which have taken a bite out of gross margins. But these trusted brands have pricing power, and management expects to fully pass the increased costs on to consumers (a common scenario).
Despite foreign currency headwinds, 2022 sales are expected to match or slightly exceed 2021. Thanks partly to its conservative payout ratio, I expect this Dividend Aristocrat to treat shareholders to another hike by the end of November, possibly boosting payouts to $0.40 per share.
2. Mid-America Apartment Communities (NYSE: MAA) – Mid-America is the nation’s largest apartment owner, with a portfolio of 300+ complexes containing more than 100,000 units. Most are located in desirable markets from Florida to the Mid-Atlantic region. Particular emphasis is placed on cities with strong population growth and job creation, such as Orlando, Nashville, and Washington, DC.
Mid-America has enjoyed steady occupancy, rising rental rates, and an expanding portfolio. This has provided the financial fortitude to support 100+ consecutive quarterly dividend payments over the past quarter-century.
Throw in capital appreciation, and MAA has delivered annualized total returns of 15.1% over the past 20 years, outpacing its peer group average by nearly 400 basis points.
As we have discussed in previous issues, soaring home prices and spiking mortgage rates have made homeownership unaffordable for many, expanding the ranks of “renter nation.” And this well-positioned apartment landlord is reaping the benefits. With demand outpacing new supply, property net operating income (NOI) growth is expected to double from 6.2% in 2021 to 15.0% in 2022.
The latest outlook calls for funds from operations (FFO) to hit $8.25 this year, a healthy increase of 18%. It doesn’t hurt that new and renewal leases are being signed at considerably higher rates. Management also intends to plow $100 million into acquisitions this year, adding thousands of new units, while also entering into joint venture partnerships to raise funding for its lucrative redevelopment pipeline.
All of this (coupled with a stout investment-grade balance sheet) points to sustained distribution growth… as we’ve come to expect.
Back in 2019, I predicted an increase in the quarterly payout from $0.96 to $1.00 per share. And the company delivered – to the penny. Despite the challenges of collecting rent during a pandemic, it continued to tack on the distribution in 2020 and 2021. And as conditions improved, dividend growth accelerated last year, with the annual payout hitting the $5.00 per share mark.
Citing strong leasing conditions and robust demand, MAA has upped its earnings outlook yet again, paving the way for another double-digit dividend hike next month.
Action To Take
We’ve had a pretty good run of finding solid ideas from this exercise, so it pays to follow along each month. Some of them end up paying off big time. So if you’re looking for a potential addition to your income portfolio, then I can’t think of a better place to start your research.
But remember, just because I highlight stocks that are likely to increase dividends doesn’t necessarily make them “buys.” These are merely ideas to get you started in the hunt for high yields.
If you want to know about my absolute favorite high-yield picks, you need to check out my latest report…
You’ll learn about 12 ultra-generous dividend payers that put more money in your pocket. And the best part? They pay dividends monthly. Go here to learn more now.