If you’re looking for a place to park some fresh cash now—and open it up to 100%+ upside—I have three words for you:
Buy dividend growth.
I’ve told you before how a portfolio of stout dividend growers is the best way to clobber the market in the long run.
The best dividend champs do double duty: fatten our pockets with surging payouts while hitting the gas on R&D spending. That locks in their competitive edge … setting the stage for even higher dividends!
It’s the kind of vicious cycle I love, and most folks pay far too little attention to.
Below I’ll give you 5 reasons why now is the perfect time to buy dividend-growth stocks, and why I’m personally doubling down on these elite companies. As we move through, I’ll also name three terrific dividend-growth plays to put on your shopping list now.
So let’s get going, starting with reason No. 1…
- Forget the Fed
A dividend hound’s worst nightmare is that the Federal Reserve will jack rates, making Treasuries and other so-called “safe” investments as attractive as our favorite dividend payers.
But breathe easy, because as I showed you on May 15, dividend growers have beaten the S&P 500 since the Fed started icing the zero-interest-rate era in late 2015.
What’s more, traders betting through the Fed futures market see just one more rate hike coming in the next 12 months! At that rate, it’ll be a lifetime before Treasuries reel in a stock paying 4%+ and boosting its payout double digits every year, like the one I reveal in point No. 4 below.
- Earnings Are Soaring
To get rising dividends, you need fatter bottom lines, and that’s exactly what we’re seeing this earnings season.
According to the latest numbers from FactSet, 73% of companies that have reported so far have topped the Street’s forecasts, above the one-year average of 70%, and profits are on pace for a nice 7.2% rise.
There’s more to come. Here’s what FactSet’s analysts expect in the next two quarters and for the full year:
And of course, fatter profits mean…
- A Jolt to Dividend Growth
There were some great signs buried in the latest dividend figures from S&P Dow Jones Indices:
- US companies announced 552 dividend hikes in Q2, 3.6% more than a year ago. Seventy-two cut their payouts, down sharply from 158 in Q2 2016.
- S&P 500 dividends are on track to rise 7% in 2017, up from 5.6% last year.
- The average S&P 500 dividend hike clocked in at 10.5% in Q2, up from 10.2% in Q1 and 10.4% a year ago.
Another spark? The possibility that the Trump administration will let US companies bring home the cash they’ve squirrelled away abroad at a lower tax rate.
That would send more greenbacks flowing to shareholders of Apple (AAPL), which has the largest overseas hoard of any American firm, at $230 billion.
That’s not the only reason to like Tim Cook’s company. It’s also a free-cash-flow machine, with FCF (or what Apple has left after growing and maintaining its businesses) clocking in at a massive $53 billion over the last 12 months.
That dwarfs the stock’s dividend, with payouts eating up just 23% of FCF. The payout also yields 1.7% and has soared 66% since Apple started paying dividends in 2012.
Another catalyst: the 10th anniversary iPhone, which will drop into the hands of legions of Apple fanboys and girls this fall.
To top it off, Apple is a big-time buyer of its own stock, which gooses earnings per share, handing us a nice extra layer of downside protection in the process:
- Where Dividends Go, Share Prices Follow
If there’s one thing you can take to the bank when it comes to stocks, it’s this: nothing can ignite a share price like a big dividend hike. Even better if you can buy into accelerating hikes!
Check out how a surging payout spiked the price of self-storage REIT CubeSmart (CUBE)—another dividend grower I like now—since the market bottomed after the chaos of ’08/’09:
That’s right: in the last eight years, CUBE has boosted its payout nearly 1,000%! And you’re not sacrificing current yield to get that growth: CUBE throws off a tidy 4.6% yield as I write.
Self-storage REITs have gone on sale due to fears of an oversupply of units, but that’s overdone, particularly in CubeSmart’s case. The REIT is nicely positioned to cash in as baby boomers downsize and consumers add to their ever-growing pile of stuff. Oh, and CubeSmart has 78% of its 832 stores in places with lower-than-average storage space—a solid counterpoint to overhyped glut fears.
CUBE ended the first quarter with 94.6% occupancy (up from 94.4% a year ago) and funds from operations (FFO, the REIT equivalent of earnings per share) up 8.3%. It gets more dividend-growth spark from its enviable payout ratio: 63.5% of trailing-twelve-month FFO, which is very conservative for a REIT.
- Your Yield Grows Fast
Most investors look at current yield when buying dividend growers … and stop there. That’s a big mistake, because it’s the yield on your initial buy that counts.
Here’s what I mean: say you bought shares of wireless-tower operator American Tower (AMT) a stock I first recommended back in October.
I love AMT because it raises its dividend every quarter, not every year!
Funny thing is, you wouldn’t know it from the stock’s yield, because its share price has risen in lockstep with those increases, keeping the payout in a pretty tight range for the last five years or so. It sits at 1.7% today:
Here’s why that’s irrelevant.
If you’d bought back in 2012, the yield on your original buy would have already doubled up the stock’s current yield, to 3.5%.
Plus, that rapid payout growth catapulted the stock to an incredible gain: 98% in this case. And if you’d reinvested your payouts, you’d be sitting on a gaudy 116% total return today!
There’s plenty more dividend (and share price) growth to come: AMT’s adjusted per-share FFO surged 18.8% in Q2, and it sends just 35.8% of its adjusted FFO out the door as dividends.
How to Lock in 12%+ Gains Every Year From Stocks
American Tower’s hamstrung yield is a perfect example of a classic mistake many people make: paying way too much attention to current yields.
But as I just showed you, a low current yield can shade massive dividend growth, and that’s what really matters if you want to clock BIG gains and an income stream that clobbers inflation!
Many people don’t realize this shockingly simple truth. But WE do … and we’re going to cash in on it.
The 3 stocks above are good examples of how you can do just that, but I’ve found 7 more set to ride their soaring dividends even higher: I’m talking reliable annual returns of 12%, 17.3% … even 25% here!
At that rate, you’ll easily DOUBLE your money in short order.
So what kind of stocks am I talking about?
One of these companies has already boosted its payout 800% in just the last 4 years. This one is a complete no-brainer for anyone looking to get bigger and bigger dividend checks from here on out!
Another skyrocketed more than 252% the last time it was anywhere near as cheap as it is now. Its dividend payments and share buybacks alone are easily enough to hand you 12% annually for many years to come!
These stocks are locked in for gains no matter what the market does. They’ll shake off any shenanigans from Washington and moves from the Federal Reserve, too!