2 Stocks That Could Raise Dividends In May

In a world of record-low interest rates, a solid dividend is increasingly tough to come by. But as I always tell my High-Yield Investing readers, the yields are there — you just have to know where to look. And lucky for you, that’s part of my job. That’s why each month I make a point to screen for stocks that are likely put more cash in your pocket in the form of dividend increases.

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. 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.

These ideas occasionally merit 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, have a proven track record of outperformance. While there are no guarantees, with a set-up like that, our chances for success should be pretty good.

This month, I have two stocks I’d like to highlight. So if you’re looking for a potential addition to your income portfolio, I can’t think of a better place to start. Without further delay, here’s what I’ve found this month…

2 Upcoming Dividend Hikes

1. Bank OZK (NYSE: OZK) – About this time last year, I predicted a pending dividend hike for this well-run regional lender. I wasn’t exactly going out on a limb. The company had already raised dividends the prior quarter. And the quarter before that. And the quarter before that.

In fact, every quarterly payment has been higher than the one preceding it for the past ten years. Formerly known as Bank of the Ozarks, this Little Rock-based institution has built a network of 250 branches stretching from Arkansas to Florida. It has been named the #1 bank in the United States for its asset size 8 times in the past 9 years.

It’s not hard to see why those accolades keep coming. The bank has attracted $21 billion in low-cost deposits that support $19 billion in personal and commercial loans. The net interest margin (NIM) between the two currently stands at nearly 4% — about 100 basis points more than the industry average.

Thanks to disciplined lending standards, the bank’s charge-offs for bad loans have been lower than the industry norm every year since its 1997 IPO. And the lean efficiency ratio (overhead operating expenses as a percent of lending profits) have been in the top 10% of the banking clan for 19 consecutive years.

That helps explain why bank OZK has never lost money. It has now posted 42 consecutive years of positive net income. That’s zero annual losses in its entire history. I can’t think of many businesses that can make that claim. Even in economic slumps, this bank has been a well-oiled machine, delivering a 21% compounded annual growth rate (CAGR) in book value per share over the past decade.

I took a position in OZK in High-Yield Investing last April and exited just six weeks later with a gain of nearly 50%. Since then, the bank’s lending profits (and dividends) have gone nowhere but up. Keep in mind, rising interest rates also deepen the income collected from the firm’s $3 billion portfolio of short-term mortgage-backed securities.

The rising stock price has pushed the yield below my 4% minimum for High-Yield Investing, but OZK would be a strong candidate on a pullback.

2. Johnson & Johnson (NYSE: JNJ) – JNJ has a bit of a black eye in the PR department right now due to rare (1 in a million) side effects for its Covid vaccine. But that will pass in time. Even if it didn’t, the company generates over $80 billion in annual sales from products that have nothing to do with the pandemic.

The health care giant’s consumer division (which includes over-the-counter brands like Tylenol and Listerine) hauls in $14 billion alone – and that’s the smallest unit. Medical devices bring in $22 billion, and core pharmaceutical sales total $45 billion.

Looking ahead, management is expecting revenues to climb 10% this year and cross the $90 billion mark. More importantly, the bottom line will outrun the top and rise by 16%.

That should pave the way for yet another annual dividend hike – which would be the 60th in a row for this Dividend Aristocrat. I think we’ll see an uptick in the quarterly payout to $1.06 per share in the coming days, which would lift the yield on this dependable defensive stock to an above-average 2.6%.

Action To Take

Remember, just because I highlight stocks that 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, 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.