2 Stocks That Could Raise Dividends In August
Another month has come and gone. And longtime readers know that means it’s time to take another look at stocks that could be hiking their dividends soon.
Each month, over at my High-Yield Investing premium newsletter, I make a point to screen for stocks that are likely put more cash in your pocket. It’s part of my job.
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.
We don’t do this just for fun. In a perfect scenario, we find great ideas for 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.
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.
We’ve had a pretty good run of finding solid ideas from this exercise, so it pays to follow along each month. Some of them end up paying off big time… So if you’re looking for a potential addition to your income portfolio, then I can’t think of a better place to start.
This month, I have two stocks I’d like to highlight. If you’re looking for a potential addition to your income portfolio, I can’t think of a better place to start. Here’s what I’ve found this month…
2 Upcoming Dividend Hikes
1. Store Capital (NYSE: STOR) – Much like Realty Income (NYSE: O), Store Capital manages a growing collection of free-standing properties rented out under triple-net leases (where the tenant covers all property taxes, insurance, and maintenance). STOR owns a national portfolio of 2,600 properties occupied by restaurants, furniture stores, auto repair shops, fitness centers, and others.
Needless to say, most of these tenants were impacted to one degree or another by the Covid pandemic. But the worst is over, and any residual effect on rent payments has been greatly diminished. The company collected 93% of the contractual rent payments due last quarter, and that rate has since improved to 95%.
In the meantime, the portfolio value has grown from $8.0 billion to $9.7 billion over the past two years. And occupancy rates remain near-perfect at 99.6%. It doesn’t hurt that three-fourths of its properties are leased to reliable investment-grade tenants.
As a real estate investment trust (or REIT), most of that monthly rental income (after expenses) is returned right back to investors.
The quarterly distribution has been climbing at a slow, but steady pace over the past five years and currently stands at $0.36 per share. Even with a swift rebound in the stock, that dividend provides an elevated yield of 4% — more than double the S&P average.
The company has already put $278 million to work thus far in 2021, acquiring 66 new properties. Those investments will generate a cash yield approaching 8% and pad the bottom line. Management is shooting for adjusted funds from operation (AFFO) of at least $1.90 per share this year. And most leases have built-in escalation clauses that automatically push rates upward each year.
In the July 2020 issue of High-Yield Investing, I flagged STOR as a “strong candidate for patient investors willing to withstand some near-term volatility.” The stock has since climbed more than 50%, rising from the low-$20s to the mid-$30s.
Don’t just take my word for it. This is Warren Buffett’s favorite real estate stock — Berkshire Hathaway bought 18 million shares a few years ago and has since accumulated 5 million more. Valuations may be a bit stretched now, but I will be monitoring the stock for a pullback.
2. McDonald’s (NYSE: MCD) — There’s something to be said for brand loyalty, and the Golden Arches stays packed with devoted customers morning, noon, and night.
The typical location generates about $2.6 million in annual sales – more than double the industry average for quick-serve restaurants. And there are nearly 40,000 locations in 100 countries worldwide. Independent franchisees own 95% of those stores, feeding the parent company a steady, annuity-like stream of cash.
After 44 straight years of dividend hikes, this Dividend Aristocrat is now serving up approximately $1 billion in dividends ($1.29 per share) each quarter. And starting next month, that payout will likely be headed upward once again.
System-wide sales have eclipsed pre-Covid levels to reach new highs, driving earnings up more than 30% last quarter to $2.05 per share. Business is back on track, which should give the board confidence to lift the payout once again. In September, I’m expecting to see a hike to around $1.35 per share, or $2.70 annually.
The relentlessly rising share price has kept yields below 2.5%, but I doubt shareholders mind.
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 check this out…
I just released a report about 5 “Bulletproof Buys” that have weathered every dip and crash over the last 20 years and STILL handed out massive gains.