As many of you know, each month I dedicate an article to informing you about stocks that are poised to put more cash in stockholders' pockets.
I flag these stocks before the official announcements are made, not after, giving you a head-start. (And my High-Yield Investing readers get an even bigger lead on this information, as you hopefully understand.)
If you read last month's article, then you know our track record on predicting these dividend increases is pretty good -- and so are the subsequent gains posted by the stocks we've covered. So you'll want to pay particular attention to this month's candidates. Here they are...
1. Discover Financial (NYSE: DFS) -- This credit-card issuer doesn't just offer cash back to cardholders -- but investors, too. Over the past two years, per-share quarterly distributions have marched from $0.30 to $0.35 to $0.40 -- an increase of 33%.
Annual step-ups have been announced in July.
Since the last increase a year ago, the firm's loan book has increased in size by 7% to $89 billion. Meanwhile, a rising prime rate has boosted the average card yield to 13.4%, expanding net interest margins (NIM). That combination has driven quarterly lending profits up 10% to $205 million. Meanwhile, delinquency rates and charge-offs for bad loans remain in check.
With first-quarter earnings rising 18% to $2.15 per share, there is a strong argument for another healthy dividend increase right around the corner.
2. Duke Energy (NYSE: DUK) -- As a regulated utility, Duke Energy's dividend growth rates aren't stellar. Payouts have been rising at a modest 4% to 5% clip in recent years. But keep in mind, any future increase will only bolster an already generous yield of 4% -- double the S&P 500 average.
Duke serves nearly 8 million residential and commercial power customers in six states and distributes natural gas to another 1.6 million accounts. The company expects to put 1,250 megawatts of renewable power generating projects into service soon, and management has reaffirmed full-year earnings guidance of $4.80 to $5.20 per share.
The mid-range of that forecast would represent a healthy increase of 6% from last year and provide a comfortable coverage ratio of 135%. I expect to see the distribution bumped to $0.96 per share starting with the August dividend.
3. Medtronic (NYSE: MDT) -- This medical device maker sells a wide range of tools and instruments to healthcare facilities in 150 countries. And it has been a model of consistency, boasting 42 straight years of uninterrupted dividend hikes.
Will we get another? The odds are good, especially since Medtronic just upped its 2019 sales growth and cash flow guidance. The company has already produced $4.1 billion in free cash flow over the last nine months (a 40% increase) and expects to finish the fiscal year with at least $5 billion. Beyond that, it continues to make inroads into key emerging markets, and the development pipeline is brimming with innovative new products. The acquisition of Covidien is also proving to be a powerful catalyst.
It wouldn't surprise me to see the quarterly dividend bumped to $0.55 per share from $0.50 in the coming months.
4. Target (NYSE: TGT) -- Target just closed the books on its best year in more than a decade. The company posted a healthy 5% gain in comparable store sales, the sharpest increase since 2005. Its e-commerce operations continue to ramp up, producing a powerful 36% increase in digital sales. That's the fifth-straight year of 25% or better growth in that department.
Target's 1,800 stores are seeing a pronounced increase in traffic, notching market-share gains in all five of its main merchandise categories. Those busier cash registers fed record earnings of $5.39 per share.
Management is eying a mid-single-digit increase in operating income this year, and I would expect dividends to ratchet up at the same rate. That would point to a payout of $0.67 per share (versus the current $0.64), lifting the yield to 3.7%.
Action To Take
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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