Not all dividend stocks are equal. One of the traps that investors fall into is the yield trap. That is, they buy a stock because it has a high dividend yield. But a dividend yield is really just a math problem. That is, the dividend yield is the announced per share annual dividend divided by the current share price.
So a company with a $2 annual dividend and a share price of $35 has a dividend yield of 5.7%. That’s actually an awesome yield.
However, the company has true control of only one aspect of that equation. And, as we learned in 2020, when things get rough, a dividend is often the first thing to get cut.
A better way to shop for dividend stocks is to look for companies that are increasing the amount of their annual dividend. With an increasing dividend the cash you generate from that stock will continue to increase no matter what happens to the stock price. And investors that don’t need that income right away can, in many cases, reinvest the dividends back into the stock to maximize their total return.
Many stock screeners let you sort for companies that have, or will be, increasing their dividends. Here’s a list of eight stocks that have recently increased their dividend, or will be soon. And some of the companies on this list have increased their dividend quite significantly.
- Nucor (NYSE:NUE)
- Ternium (NYSE:TX)
- Procter & Gamble (NYSE:PG)
- Johnson & Johnson (NYSE:JNJ)
- Tractor Supply Company (NASDAQ:TSCO)
- Costco (NASDAQ:COST)
- Whirlpool (NYSE:WHR)
- Anthem (NYSE:ANTM)
Dividend Stocks: Nucor (NUE)
The first of the dividend stocks on this list is Nucor, the largest steel producer in the United States. Steel prices began rising in 2020 fueled by a lack of supply and surprisingly high demand. A proposed infrastructure plan is likely to keep demand high.
What the final infrastructure plan will look like is anyone’s guess. But it’s certain to create a favorable environment for steel demand. And that demand should put a floor under NUE stock even if steel prices move lower as production continues to come online.
Nucor has increased its dividend for 48 consecutive years. This makes it a dividend aristocrat and puts it two years shy of being in the even more exclusive club of dividend kings. The average increase of the company’s dividend over the last three years has been 6.61%. By applying the Rule of 72, that means the company will double its dividend payout in approximately 10 years.
Sticking with steel stocks, I’ll offer up Ternium as a complementary stock to Nucor. Ternium is the leading steel company in Latin America. The company is becoming more cost competitive and has taken steps to increase its liquidity and overall balance sheet during the pandemic.
The stock is near its all-time high. Ternium reports earnings in late April and is expected to show earnings growth of 154.4% for the quarter. Both of these indicators give support to TX stock getting ready to push into record territory.
Ternium pays out an annual dividend. The company did not increase its dividend in 2020, but just raised it 90 cents on April 15. This averages out to 41.81% of the company’s trailing 12-month earnings. Normally, investors should be cautious when a company breaks a string of dividend increases. However, 2020 was a difficult year for most companies. Ternium didn’t cut its dividend, nor did it suspend it. It simply kept it the same and had a history of increasing it prior to the pandemic.
Dividend Stocks: Procter & Gamble (PG)
Consumers are expected to continue the deep cleaning rituals they initiated during the pandemic. That’s a positive catalyst for Procter & Gamble. As a defensive stock, the company had a great year in 2020 as more Americans made sure their medicine cabinets were well supplied. In fact, at one point, PG stock was acting like a bona fide growth stock, soaring 41% from its pandemic low.
The stock has since given up those gains, but it still sports a 14.5% gain over the last 12 months. However, this is an article about dividend stocks and that’s where PG stock continues to shine. The company recently announced a 10% increase in its dividend, raising the dividend from 79 cents to 86 cents per share.
That makes it 59 consecutive years of raising its dividend payout for this dividend king. And the company has been raising its dividend at a pace of 13.87% over the last three years.
Johnson & Johnson (JNJ)
Don’t let the recent pause in the company’s vaccine rollout deter you from taking a close look at JNJ stock. Unlike the other biotech companies that brought a novel coronavirus vaccine to market, Johnson & Johnson has a host of other revenue streams.
Those revenue streams in addition to its vaccines propelled the stock to its all-time high in late 2020. The company is only up about 8% in 2021, but it’s up 38% since the onset of the pandemic. And the company just posted a double beat on earnings that may serve as a further catalyst for the stock.
JNJ recently increased its dividend by 5% from $1.01 to $1.06. That matches Procter & Gamble with 59 consecutive years of dividend growth. And over the past three years, the company has been increasing its dividend by an average of nearly 20% (19.88%).
Dividend Stocks: Tractor Supply Company (TSCO)
After delivering strong results in 2020, Tractor Supply Company is benefiting from a couple of recent analysts’ upgrades that may present investors with another year of growth, albeit at a slower rate than in 2020.
However, a little bit of slower growth shouldn’t be a huge concern when the company rewards its shareholders with a whopping 30% dividend increase. An increase of this magnitude would normally be a red flag. Sometimes company’s will issue a sizable dividend increase to make up for a bad growth story.
However, in the case of TSCO stock, the company has a regular pattern of increasing its dividend payout. In fact, this increase makes it 10 straight years for the company and gives it an average increase of 42.86% over the last three years. A good course of action would be to accept the company’s generosity and jump on board the stock for some share price growth and to capture what amounts to a $2.08 annual dividend.
Costco was another retailer that was a pandemic performer. But the company has been giving investors a lot to be excited about even before 2020. The warehouse club operator has averaged revenue growth of nearly 9% in the last few years. And it achieves this growth while still expanding into different locations (its footprint now includes more than 800 stores). Plus, the company enjoys a membership retention rate of more than 90%.
During the pandemic, the company added e-commerce to its bag of tricks. This positions it for future growth even as competitors like Amazon (NASDAQ:AMZN) and Walmart (NYSE:WMT) continue to nip at its heels.
Costco is a good example of not being too hung up on a yield. COST stock has a pretty meager one; it yields only about 0.72% at the time of this writing. However the company just increased its dividend by nine cents in April 2021. And over the past three years, it’s delivered 41.03% dividend growth. On top of that, Costco issued a $10 per share special dividend in December 2020.
Dividend Stocks: Whirlpool (WHR)
As a Michigander (yes, that’s a term) I felt like I needed to include Whirlpool on this list of dividend stocks. But it’s not like they haven’t earned it. WHR stock is up 136% in the last 12 months. And the reason why is obvious. When people buy new homes, they tend to buy new appliances. And that, along with cost-cutting measures applied by the company, is translating to strong growth on the top and bottom lines.
In the company’s first-quarter earnings report, the appliance manufacturer earned $7.20 in adjusted EPS and posted revenue of $5.4 billion. Analysts were expecting a $5.40 EPS on revenue of $4.9 billion.
Whirlpool also rewarded its shareholders with a 12% dividend increase. This comes on the heels of a five cent per share increase that the company delivered to shareholders in the third quarter. The company has now delivered 12.79% dividend payout growth in the last three years.
Healthcare has remained a red-hot sector. Anthem is the largest for-profit managed health care company in the Blue Cross Blue Shield (BCBS) Association. ANTM stock is up 45% in the last 12 months and 20.7% in 2021.
Anthem recently issued an 18.95% dividend increase from 95 cents per share to $1.13. This brought the company’s three-year dividend growth to 40.74%. This is another example where if you just pay attention to the yield, you’re missing the underlying story.
Anthem just reported first-quarter earnings and beat earnings expectations. Quarterly revenue came in as a slight miss, but was still 9% higher than the prior quarter.
In a sector like healthcare, long-term trends can say a lot more about a stock’s prospects than short-term performance. In Anthem’s case, the company has seen its annual earnings grow at a 16.5% clip over the past five years. This is significantly higher than the 11% industry average. And more impressively it outpaces the broader market which averages 12%.
On the date of publication Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Chris Markoch is a freelance financial copywriter who has been covering the market for seven years. He has been writing for Investor Place since 2019.