If the market dumpster fire we trudged through in 2022 taught us anything, it’s that we must swing our portfolios away from this:
We’re Swapping Share-Price “Flameouts” Like This…
That’s the chart of “America’s ticker”—the SPDR S&P 500 ETF Trust (SPY)—last year. I call SPY “America’s ticker” because it’s by far the most popular way to track the S&P 500, a staple in many folks’ portfolios.
But its popularity does not translate into safety. Just holding this simple index fund last year meant taking a 20% haircut—with plenty of heart palpitations along the way! And even with this year’s rebound, the S&P 500 is still 4% below its January 2022 levels as of this writing.
That’s a lot of worry, stress and (let’s be honest) fear to endure in 18 months—and you still haven’t even recouped your losses! This is exactly why we want to shift our portfolio returns away from shaky share prices and toward the steady growth of dividends:
… For the Gentle Upward Drift of Dividend Growth
That’s more like it! What you’re looking at is the payout growth at Coca-Cola (KO), a stock many folks look to as a source of steady dividend payouts.
Dividends Set to Soar With Higher Corporate Profits in ’24
The good news is that it’s easy to shift more of your return to dividends these days: while a July 17 forecast from Yardeni Research sees S&P 500 earnings slipping 0.4% this year, it has profits pegged for 12.6% growth in 2024. That big jump in bottom lines will certainly lead to more payout hikes for us!
But we’re not going after snoozy payers like Coke: its meager dividend growth isn’t enough for us to bother logging into our brokerage accounts!
Here are three things we are going to look for in dividend growers we’re targeting this year:
- “Medium-sized” dividend yields—in, say, the 3% to 5% range—so we’ve got a decent payout now and a 7%+ yield on our original buy soon, thanks to …
- Accelerating dividend growth, which, as we’ll see in a moment, drives share prices higher over time, a phenomenon I refer to as the “Dividend Magnet.” Rising dividends also boost our yield on cost—or the yield on our original buy.
- Finally, we like to see a healthy share buyback program that was particularly active in late 2022 and the first half of 2023, when stocks were cheap.
Bonus points if we can find stocks with high insider buying—because as I mentioned in my June 16 article, insiders can sell their shares for any number of reasons, but they only buy for two: they expect the price to rise and they expect the dividend to rise—and bolster their own personal income streams!
Buying a stock with this heady mix can lead to serious gains indeed—as we’ve seen over and over again in my Hidden Yields dividend-growth advisory.
How Buybacks and Surging Payouts Sent Our “Popular” Buy Soaring
Here’s just one example of how these ingredients can “blend” to give share prices a big boost. Back in the spring of 2019, I issued a buy call on Puerto Rico’s Popular (BPOP), the largest financial firm on the island, in Hidden Yields.
It’s just the kind dividend grower we love! A midcap stock (with a market cap around $5 billion) that’s off the radar for most folks—except those who live on the island, of course. Plus, when we bought, Popular was trading at book value, or the value of its physical assets. This meant we were getting its booming banking business for free!
And booming it was: Popular had been steadily building market share as foreign banks left the island, including Wells Fargo & Co. (WFC), which had just sold about $2 billion in auto loans to Popular. In all, Popular had a dominant 58% share of the island’s banking market.
Sure, the stock only yielded about 2.2% at the time, but its dividend growth was off the charts, with the payout having doubled in the preceding three years. That potent Dividend Magnet was working its magic on the share price:
A Profitable Pattern We “Hidden Yielders” Know Well
Share buybacks? Check. The bank had just dropped $250 million on its own stock. And over the preceding three years, it had taken 6.8% of its “float” off the market, too! That has a knock on effect on the company’s dividend payout because it’s left with fewer shares on which to pay out.
A Decline We Love to See in Our Dividend Stocks
That was enough for us. We bought Popular for Hidden Yields in May 2019 and held it for just shy of three years, checking out in April 2022.
In that time, management juiced the dividend by an astounding 83%, doubling the yield on original buy to 4%. The bank also took 21% of its shares off the market. All together, these moves drove the stock price up 48%, for a total return of just over 61%:
Buybacks and Dividend Growth Powered Popular to a Fast Gain
Of course, none of this was visible by just looking at the 2.2% current yield, as many folks do. That’s why we need to dig deeper. And with dividends and buybacks likely to pick up with corporate profits later this year and through 2024, we’ll get plenty of opportunities to do so.
5 More Dividend Magnet Plays to Buy NOW (Before They Soar in ’24)
As you can tell, I see 2023 as a transition year between last year’s disaster and the big jump in corporate profits (and dividends) that’s likely in 2024.
There are still dividend bargains on the board for us, but we need to act now to lock them in. As always, My Dividend Magnet strategy is our guiding light here—which is why I want to take you inside this plan and show you exactly how it works.
This VIP invite also includes 5 of my latest Dividend Magnet picks. These stocks all boast superb dividend growth and prices that have marched right up alongside those payouts. One of these stocks—a utility that should top everyone’s list—yields a rich 5.8% and has boosted its payout a shocking 333% in a little over seven years!
Now is the time to buy these stocks, before they announce their next dividend hikes. Click here for details on my Dividend Magnet strategy, and the chance to download a FREE Special Report revealing all 5 of these tough-as-nails dividend-growth picks.