Another month has come and gone. And longtime readers know that means it’s time to take another look at stocks that could be hiking their dividends soon.
Each month, over at my High-Yield Investing premium newsletter, I make a point to screen for stocks that are likely put more cash in your pocket. It’s part of my job.
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.
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.
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.
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.
This month, I have three stocks I’d like to highlight. If you’re looking for a potential addition to your income portfolio, I can’t think of a better place to start. Here’s what I’ve found this month…
3 Upcoming Dividend Hikes
1. Illinois Tool Works (NYSE: ITW) – Founded over a century ago, this industrial manufacturer sells auto parts, welding equipment, restaurant ovens and coolers, and other specialized products. It’s not a terribly exciting field. But as I’ve said before, boring can be great.
ITW generates $15 billion in annual revenue and maintains best-in-class margins across many of its core product lines. Despite trade disputes, raw materials price inflation, and other headwinds, earnings continue to reach new highs, soaring more than 140% last quarter.
The company is seeing strong momentum across the board right now, with even its slowest segment delivering a 15% revenue growth (the fastest was up 84%). And with much better margins, it produced nearly half a billion in free cash flow last quarter.
Keep in mind, management likes to return 50% of its profits to stockholders. So quarterly dividends have been climbing just as fast, rising for 56 straight years. Well, make that 57 now. I was anticipating another hike soon, but ITW beat me to it.
Starting with the next payment, shareholders can expect to see quarterly dividends of $1.22 per share, a 7% increase.
2. Texas Instruments (NYSE: TXN) – Many companies can claim to have raised dividends in each of the past five years. But only a select few have increased them by 200%. TXN is one of them. Last year’s 13% hike lifted the payout to $1.02 per share – triple the $0.31 level from 2015.
Thanks to efficient manufacturing, TXN is enormously profitable, turning every dollar of sales into nearly 40 cents of free cash flow (FCF). That FCF generation ranks in the 91st percentile, outperforming more than nine out of every 10 U.S. companies. And returns on invested capital have risen to the top of the charts (97th percentile).
Texas Instruments is one of the most shareholder-friendly companies around, consistently returning 100% of FCF to stockholders. Management intends to deliver between 50% and 60% via annual dividends (right in my sweet spot) and the rest through continued stock buybacks to shrink the share base even further.
While Covid has taken a bite out of analog chip sales in certain end markets (namely the automotive sector), demand has been on the upswing in recent weeks. Meanwhile, free cash flow has improved markedly to $6.5 billion over the past 12 months.
I suspect TXN will have another double-digit dividend increase in store for investors in mid-September.
3. American Express (NYSE: AMX) – American Express has all the hallmarks of a classic Warren Buffett pick. The business churns out buckets of “owner earnings” and enjoys lofty returns on capital thanks to an unbreachable economic moat in an industry protected by tall barriers to entry.
No wonder Berkshire Hathaway owns 152 million shares, a stake whose value has ballooned to $24 billion.
While the relentless rising share price has generally kept yields below 2%, AXP continues to reward shareholders with higher payouts each year. Distributions have been climbing at a 9% clip over the past decade. While that streak was put on hold due to Covid last year, odds are good this pattern will be re-instated soon.
Not only did the company add 2.4 million new members to its rolls last quarter, but cardholder spending has picked up sharply and now exceeds pre-pandemic levels.
I expect to see an uptick in the quarterly distribution to around $0.47 per share.
Action To Take
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.
With that said, all of these stocks are worthy candidates for more research as a potential addition your portfolio. But if you want to know about my absolute favorite high-yield picks, then check this out…
I just released a report about 5 “Bulletproof Buys” that have weathered every dip and crash over the last 20 years and STILL handed out massive gains.
Go here to check it out now.