2 Stocks That Could Raise Dividends In August
As some of you know, I make a regular habit of looking for dividend hikes. As Chief Strategist of High-Yield Investing, it’s part of my job.
Each month, 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. 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.
This month, I have two stocks I’d like to highlight. So if you’re looking for a potential addition to your income portfolio, consider looking at these names further…
2 Upcoming Dividend Hikes
1. Texas Instruments (NYSE: TXN) – Hundreds of companies have raised dividends in each of the past five years. But not many have increased them by triple digits. TXN is one of them. Payouts have doubled since 2016, marching from $0.62 to $1.24 per share.
The analog chipmaker is enormously profitable thanks to efficient manufacturing, turning every dollar of sales into 35 cents of free cash flow (FCF). Returns on invested capital (RoIC) hover north of 30%, which ranks in the 95th percentile, outperforming 95 out of every 100 U.S. companies. And when it comes to sharing surplus profits, this is one of the most shareholder-friendly companies around.
Management generally aims to return 100% of FCF to stockholders, delivering about 60% via dividends and the rest through diligent share repurchases. The latter has shrunk the outstanding share count by half. And with fewer fingers dipping into the pie, free cash flows have risen even faster per share.
In turn, dividends have been growing at a 25% compounded annual pace since 2004 – doubling every three years on average. They have now risen for 19 straight years, putting TXN on watch for membership in the exclusive Dividend Aristocrats club.
Cumulatively, Texas Instruments has returned $50 billion to stockholders over the past decade while plowing billions more into research and development (R&D) to maintain its competitive edge.
Strength in the industrial and automotive sectors is driving healthy global top-line growth, buoyed by grants and tax credits associated with the CHIPS Act. The company has churned out nearly $9 billion in operating cash flows over the past 12 months.
We know where most of that cash is headed. I suspect TXN will hand out another sizeable double-digit dividend hike in mid-September.
While the sub-3% yield is a bit shy of my portfolio minimum, this outstanding business will likely continue rewarding investors over the long haul. I would consider it a top portfolio candidate on a pullback below $150.
2. Illinois Tool Works (NYSE: ITW) – Founded over a century ago, this industrial manufacturer sells auto parts, welding equipment, restaurant ovens and coolers, and other specialized products. It’s not a terribly exciting field. But as I’ve said before, boring can be great.
ITW generates $15 billion in annual revenue and maintains best-in-class margins across many of its core product lines. Despite trade disputes, raw materials price inflation, and other headwinds, earnings continue to reach new highs and are expected to approach $10 per share at the upper end of the guidance range.
With stout operating margins near 30% and light capital spending requirements, the company is converting almost 90% of its net income into free cash flow.
Keep in mind, management likes to return half of its profits to stockholders. So quarterly dividends have been climbing just as fast, rising for 58 straight years.
Hikes are usually approved and announced in early August. The latest was a 7.4% uptick which lifted the quarterly payout to $1.31 per share. A similar increase next month would push the annual distribution to $5.63 per share.
Action To Take
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 your research.
But 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.
And if you want to know about my absolute favorite high-yield picks, you need to check out my latest report…
You’ll learn about 12 ultra-generous dividend payers that put more money in your pocket. And the best part? They pay dividends monthly. Go here to learn more now.