Get Ready for These Dividend Hikes Next Month
Living off passive income from dividend investing can be great. But there is something to be aware of: inflation. While Americans are enjoying a relatively low-inflation environment compared to some parts of the world, the cost of living in the U.S. has gone up quite a bit over the years.
That means, if your stock portfolio churns out just a steady stream of dividend income, your purchasing power is actually deteriorating as time goes by.
And that’s why today, I want to turn our focus to dividend growth.
Finding growth stocks might not seem that easy, especially with all the uncertainty facing our economy at the moment. However, finding dividend growth stocks is actually much easier.
This is because companies tend to review their dividend policies at regular intervals (usually once a year). If a company has a solid track record of raising its payout, management will likely want to continue the streak.
Of course, dividends come from profits. If a company’s business deteriorates to a point where it can no longer make enough money to cover the payout, it would have to either use cash on hand or borrow money to continue that streak. And neither option is sustainable in the long term.
Therefore, even if a company raised its dividends consistently in the past, it still needs a solid business to be considered a dividend growth stock for long-term investors.
February is approaching, and this is a popular time of year for companies to review their dividend policies.
Many analysts say that 2019 will be a volatile year for the markets. Wouldn’t it be nice to see your portfolio give you a pay raise during those ups and downs?
With that in mind, let’s take a look at three dividend stocks that are well positioned to increase their payout in February 2019. I should point out that there will be a lot more companies making dividend hike announcements during the month, but the following three deserve special attention for their own reasons.
3 Dividend Increases to Expect in February 2019
| Company Name | Stock Exchange | Ticker Symbol | Dividend Yield |
| The Coca-Cola Co | NYSE | KO | 3.3% |
| Magna International Inc. | NYSE | MGA | 2.6% |
| Medical Properties Trust, Inc. | NYSE | MPW | 5.9% |
The Coca-Cola Co
The Coca-Cola Co (NYSE:KO) has undoubtedly been one of income investors’ favorite stocks over the past century.
The company has paid uninterrupted quarterly dividends since 1920, and has raised its payout in each of the last 55 years. (Source: “Investors Info: Dividends,” The Coca-Cola Co, last accessed January 18, 2019.)
That makes Coca-Cola a “Dividend King,” which is a title reserved for companies with at least 50 consecutive years of annual dividend increases. Among thousands of companies trading on U.S. stock exchanges, only 25 have earned the “Dividend King” title.
Now, we know that past performance does not guarantee future results. But the reality is, the fundamentals that allowed KO stock to achieve this kind of track record still apply today.
You see, the beverage giant currently has more than 500 brands, 21 of which generate more than $1.0 billion in annual sales each. The company has over 250 bottling partners, helping its products reach more than 200 markets around the world. Each day, people consume approximately 1.9 billion servings of Coca Cola’s products.
This massive recurring business is extremely durable. In a recession, we tend to purchase fewer luxury goods, but a can of Coke would still be affordable to most people.
By running a recession-proof business, The Coca-Cola Co has the ability to return cash to investors through thick and thin. As its business grew over the decades, the company was able to mail out bigger dividend checks every single year.
As you’d expect, investors who held onto KO stock over the years have locked in big returns. One of those investors is Warren Buffett. Last time I checked, Buffett’s company, Berkshire Hathaway Inc (NYSE:BRK.B) owned 400 million shares of Coca-Cola, worth a whopping $19.0 billion at today’s price. (Source: “Form 13F Information Table,” United States Securities and Exchange Commission, last accessed January 18, 2019.)
Because I’ve talked about KO stock plenty of times in this column, I won’t bore you with the numbers this time. Just know that the company has enough resources to back its dividend increases and its business remains solid.
Coca-Cola’s board of directors usually reviews the company’s dividend policy in February. I wouldn’t be surprised if shareholders get a pay raise from KO stock next month.
The company currently yields 3.3%.
Magna International Inc
Magna International Inc (NYSE:MGA) is an automotive parts supplier headquartered in Aurora, Ontario, Canada.
Given what happened during the last recession, the automotive industry isn’t really known as an income investor’s favorite. In fact, because of the cyclical nature of auto sales, long-term investors tend to stay away from automakers.
The neat thing is, Magna runs a very diversified business. It supplies parts to a large number of automakers, including General Motors Company (NYSE:GM), Ford Motor Company (NYSE:F), Fiat Chrysler Automobiles NV (NYSE:FCAU), Toyota Motor Corp (NYSE:TM), and Tesla Inc (NASDAQ:TSLA)—just to name a few. The company has 340 manufacturing operations and 90 product development, engineering, and sales centers in 27 countries.
Magna is determined to return cash to investors through dividends. From 2013 to 2018, MGA stock’s quarterly dividend rate more than doubled. (Source: “Dividends,” Magna International Inc, last accessed January 18, 2019.)
Most importantly, Magna International Inc has no problem covering its growing payout. In the first nine months of 2018, the company generated adjusted earnings of $5.08 per diluted share while paying total dividends of $0.99 per share. (Source: “Press Release – Magna Reports Record Third Quarter Results,” Magna International Inc, November 8, 2018.)
In other words, Magna was paying out less than one-fifth of its profits. That should leave plenty of room for future dividend increases.
Indeed, management plans to keep that track record alive. According to Magna’s latest investor presentation, one of the company’s ongoing financial focus is “continued dividend growth over time.” (Source: “Investor Presentation January 2019,” Magna International Inc, last accessed January 18, 2019.)
Magna’s board of directors usually makes its first-quarter dividend announcement in late February. Given the company’s financial situation and the fact that it has paid four dividends of the same amount, the next dividend announcement—which will be within a few weeks of this writing—will likely be an increase.
Medical Properties Trust, Inc.
Now, you are probably thinking, “Jing, those two stocks look pretty good, but they don’t yield that much.”
I know, but here’s the thing: while Coca-Cola and Magna are not exactly high-yield stocks, continued dividend increases should make the investment worthwhile. In fact, I’m pretty sure that anybody who purchases KO stock or MGA stock today will get a higher yield on cost a few years down the road.
Still, if you have your eyes set on earning a high yield today, the third potential dividend raiser in February 2019 might do the trick.
I’m talking about Medical Properties Trust, Inc. (NYSE:MPW), a real estate investment trust (REIT) headquartered in Birmingham, Alabama. The company has a portfolio of healthcare properties and collects rent from tenants through long-term triple net leases.
While REITs are known more for their ability to generate a steady income, MPW stock managed to deliver some impressive dividend growth. Medical Properties Trust has raised its dividend rate every year since 2013. (Source: “Dividend and Split History,” Medical Properties Trust, Inc., last accessed January 18, 2019.)
Medical Properties Trust also stands out in terms of yield. When I named MPW stock “a top pick for dividend growth investors” last year, the company had a yield of 7.9%.
Since that article was published, MPW stock has surged 35%. Note, however, that due to the inverse relationship between dividend yield and stock price, its yield is no longer that high.
Still, with a quarterly dividend rate of $0.25 per share and a stock price of $17.09, Medical Properties Trust pays 5.9% at the moment, which is not a low figure by any means.
And based on the company’s financials, another payout increase should be on the way.
In the first three quarters of 2018, Medical Properties Trust generated normalized funds from operations of $1.07 per share. Since the company declared $0.75 per share of dividends during this period, its payout ratio came out to just over 70%, leaving a wide margin of safety. (Source: “Medical Properties Trust, Inc. Reports Third Quarter Results,” Medical Properties Trust, Inc., November 1, 2018.)
In MPW’s latest earnings release, Chairman/President/CEO Edward K. Aldag, Jr. made it clear what the company intends to do next.
“We think 2019 has the potential to be a monumental year for the Company with opportunity to deliver market-leading FFO and dividend growth from the very large, diverse and actionable acquisition pipeline that we have assembled,” said Aldag, Jr. (Source: Ibid.)
Just like the previous two companies, Medical Properties Trust has paid the same dividend for four consecutive quarters. I expect the company to announce a $0.01-equivalent (four-percent) increase to its quarterly dividend rate to $0.26 per share in February.