You might have missed the news, but video game retailer GameStop (NYSE: GME) tumbled 35% last week after the company eliminated its dividend.
As Chief Investment Strategist of High-Yield Investing, it's my job to help steer my premium subscribers away from looming icebergs like this.
One of the best ways to do that is by hunting for companies that are raising their dividends -- after all, a growing dividend is usually a sign of good, predictable business conditions, all else being equal.
This month, I told my premium newsletter subscribers about three companies that are likely to give shareholders a dividend boost in the next four to six weeks. And while High-Yield Investing readers get a lead on this information each month before anyone else, I always make a point to pass my findings along to the public.
So without further delay, here they are...
1. Illinois Tool Works (NYSE: ITW) -- This industrial manufacturer sells auto parts, welding equipment, restaurant ovens and coolers, and many other specialized products spanning seven distinct business segments. It's not exactly a glamorous line of work.
But boring can be good.
ITW generates $15 billion in annual revenues and returns 50% of its profits to stockholders. Since 2012, operating margins have expanded more than 800 basis points (from 16% to 24%), fueling triple-digit earnings growth. In turn, quarterly dividends have soared nearly 140% to reach $1.00 per share.
While foreign currency headwinds are pressuring revenues, management is expecting operating margins to expand by another 100 basis points this year, helping drive earnings up 6% to $8.05 per share. And with the company converting more than 100% of its net income to free cash flow, I anticipate another solid dividend hike in August -- potentially pushing the yield past the 3% level.
2. Brinker International (NYSE: EAT) -- If you couldn't guess from the ticker symbol, Brinker is in the restaurant business. This is the corporate parent of Chili's, one of the country's largest casual dining chains. There are 1,200+ company-owned and franchised locations nationwide, and several hundred more across two dozen international markets.
Brinker has consistently raised dividends in the third quarter in recent years, but that trend was halted in 2018 when it had to make substantial cash tax payments for gains on real estate sales (the proceeds were used to pay down debt). Distributions have since stayed level at $0.38 per share.
As we enter the latter half of fiscal 2019, labor and food commodity costs are biting into margins. But recent initiatives aimed at marketing, menu and store appearance improvements are bearing fruit. Comparable store sales have been on the rise, and traffic growth figures have outperformed the category average for five straight quarters.
With another 40 store openings planned for this year, earnings guidance has just been raised to between $3.75 and $3.95 per share. That would mark an increase of 7% to 13%, possibly encouraging the board to reinstate its regular third-quarter dividend hike.
3. First American Financial (NYSE: FAF) -- Founded over a century ago, First American provides financial services to home buyers. But it's no mortgage lender. The company issues title and home warranty insurance, handles escrow monies and facilitates the settlement of real estate transactions.
If you've ever bought a home, then you know there are stacks of forms to sign and closing costs to pay. Nobody looks forward to this part of the process, but First American provides an important intermediary service -- and that service isn't free.
As you might expect, demand is tied to commercial and residential property sales. And there are roughly 14,600 homes sold every day in the United States, 5.3 million annually at the current pace. Between premiums, fees and investment income, the company took in $5.7 billion in revenues last year and churned out $793 million in operating cash flows -- a healthy increase of 25%.
Dividends have been rising 11% to 12% annually the past couple years, and a similar bump in August could elevate the quarterly payout to $0.46 per share.
Action To Take
As always, just because these stocks are likely to increase dividends soon doesn't necessarily make them "buys" -- so we won't be adding them to the High-Yield Investing portfolio right away. That said, we'll be watching these names closely and doing further research. If any of these stocks interest you, then I'd suggest doing the same.
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