3 Big Dividend Hikes To Watch Closely

In any given year, the market is full of news. And it can sometimes feel difficult for individual investors to keep up with everything.

That’s especially true this year. For example, let’s say you’re an income investor. You’re looking for strong candidates to add to your watchlist — or perhaps even add to your portfolio right away. But you want to see some evidence that your payouts will rise over time — so you make a note to watch for news of stocks that are raising dividends.

That’s certainly a good intention. But between endless news about Covid-19, Federal stimulus, rising tech stocks, correction worries, battles in Washington… it can sometimes feel overwhelming.

Fear not. That’s why I’m here.

As you may know, each month I make a point to screen for stocks that are likely put more cash in your pocket. As Chief Investment Strategist of High-Yield Investing, it’s part of my job.

In each issue of my premium newsletter, I scan the market for potential dividend hikes. 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, so it pays to follow along each month. Some of them end up paying off big time.

If you’re looking for a potential addition to your income portfolio, then I can’t think of a better place to start. So without further delay, here’s what I’ve found this month…

3 Upcoming Dividend Hikes

1. Starbucks (NYSE: SBUX) – You gotta love the fall. The air is suddenly crisp and the leaves begin to turn. The World Series gets underway. And cash generators like Starbucks reward their faithful shareholders with dividend hikes.

The ubiquitous coffee chain raised its distributions from $0.20 to $0.25 per share in November 2016 and then to $0.30 in November 2017. The 2018 hike lifted the payout to $0.36 per share. And then last year, it was boosted another 14% to $0.41. The company is well on track to meet its three-year goal of returning $25 billion in capital to shareholders by the end of 2020.

So what can we expect in 2021 and beyond?

Well, let’s just say that Covid hasn’t stopped Starbucks’ aggressive expansion plans. Management still intends to open 300 new stores in the Americas and 500 in China by year’s end. For now, fully 97% of the 32,000 global locations have reopened. And while store traffic is down, the average customer is spending about 23% more per ticket.

A few months ago, management released a very wide full-year earnings forecast range of $0.55 to $0.95 per share, reflecting extreme uncertainty. The outlook was about as clear as mud. But as the effects of Covid moderate, that range has now been tightened to between $0.83 and $0.98 per share.

Meanwhile, Starbucks recently closed a $3 billion bond issuance (at cheap borrowing rates) to boost liquidity and prefund next year’s bond maturities. That balance sheet flexibility may help pave the way for a modest hike next month to around $0.43 per share.

2. Visa (NYSE: V) – Most dividend investors take a quick glance at Visa’s sub-1% yield and walk right on by. That’s a mistake – and not just because the stock has delivered market-crushing annual returns of 24% over the past five years.

What Visa lacks in current income, it makes up for in distribution growth. Payouts have risen more than 100% since 2015, doubling from $0.14 to $0.30. That’s a compound annual growth rate of 16%. But the stock has also more than doubled, climbing from $70 to $200.

So it’s wrong to suggest that Visa has a stingy dividend. The yield has simply been pinned down because the relentlessly rising share price has been rising in lockstep. Faster actually, 24% to 16%.

Not a bad problem to have.

Visa processed a staggering 30.7 billion card transactions between April and June – in the teeth of the pandemic. That’s about 13% below normal, but there was steady improvement each month throughout the quarter. The payment processor has a wide economic moat and a long growth runway as the world continues to shift towards electronic transactions.

Visa has faithfully raised dividends for 12 straight years. And with a conservative payout ratio around 25%, there is ample room to extend that streak.

I think shareholders could be looking at $1.80 per share in annual distributions within the next three years. But don’t be surprised if the yield doesn’t budge because the shares keep pace.

3. Cintas (NYSE: CTAS) – The bad news: Cintas only makes one dividend payment per year. The good news: that distribution is coming up soon.

In October 2018, the board lifted the payout by 26% to $2.05 per share. It followed up last October with a 24% increase to $2.55 per share. That’s a powerful 50%+ surge in just 24 months, which puts Cintas among the market’s elite.

The company has raised dividends every year since its IPO in 1983. That’s 36 consecutive years if you’re keeping score.

As the nation’s largest uniform rental company, you might expect Cintas to be struggling amid the downturn in payrolls. But you don’t increase dividends every year for nearly four decades without showing some resilience in tough climates.

In fact, the company has delivered sales and profit growth in 49 of the past 51 years. That includes fiscal 2020. Cintas now provides uniforms, janitorial supplies, and other products to more than one million business customers, mostly in the healthcare, food service, and hospitality fields. And those customers have produced over $1 billion in free cash flow over the past 12 months – a healthy 34% bump over 2019.

That should allow for a dividend hike to perhaps $3.00 per share later next month.

Action To Take

As always, remember that just because these stocks 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, we’ve got three very solid candidates this month. Starbucks and Visa, in particular, offer good examples that growth and income don’t have to be diametrically opposed. After all, with a little patience, investors could be rewarded with with a high “yield on cost” and healthy price appreciation.

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 you’ll need to be a member of High-Yield Investing.

To learn more, check out my latest report right here.