Dividends Are A Pillar Of Your Portfolio
Dividend-growth stocks are my absolute favorite when it comes to investing. These stocks offer not only the chance for capital appreciation but also for an increasing yield-on-investment. Over time, the combination can drive total returns far in excess of the broad market. With the third-quarter earnings cycle fast approaching it is the season to expect increases from some known dividend-growers.
There’ve been no few dividend-growers to forego an increase this year because of the pandemic so it’s more important than ever to be picky with these stocks. As with most things in the market, dividend-growth can be a two-edged sword. A company expected to increase a payment that doesn’t might see its share prices suffer for it. The companies I’ve listed all have a solid track record of dividend growth, insulation from the pandemic, and results to back up their outlook.
Nike’s Digital Transformation Has Just Begun
Nike (NYSE:) is a dividend-grower that has raised its distribution for 18 consecutive years. The company is well-positioned to increase again in November as it has in years passed and it could be a big one. Not only is the payout ratio very low, but the 5-year CAGR is above 10% and the company’s business is quite strong. The fiscal Q1 results were a bit light compared to last year but showed remarkable resilience in light of conditions. The only negative to Nike’s payment is the yield, less than 1.0%, but that is offset by the business growth outlook.
The key element to the company’s success, aside from mega-brand recognition, is direct to consumer and eCommerce. Direct-to-consumer is a higher-margin sales route for the company and growing double-digits. According to UBS Nike is just getting started when it comes to eCommerce and expects a high-double-digit EPS CAGR for the next few years at least. The takeaway for us is that Nike’s dividend is safe, secure, and likely to grow at double-digits over the next few years.
“The key is Nike’s transition to digital selling is happening much faster than we anticipated. Importantly, we think this transformation is just getting started and will drive better-than-expected sales growth and margin expansion well into the out-years. We now forecast a 30% 5-yr. EPS CAGR with EPS reaching $4.60 by FY23 (vs. $3.30 before) and $6.00 by FY25.”
Thor Industries Is About To Declare And Raise
Thor Industries (NYSE:) has emerged from the pandemic victoriously. The company has seen a marked uptick in demand across most segments that have revenue and earnings on track for growth this year and next. The company just reported its FQ4 results a week ago and about to declare the next dividend. If the company’s 9-year history of payments, the balance sheet, and the outlook for growth is any indication, this next declaration will include an increase and it may be a substantial one. The 5-year CAGR is running just shy of 10% suggesting that, when times are good, the company rewards its shareholders.
Looking forward, there are multiple factors in Thor’s favor. The first is increasing demand driven by the pandemic. Sales of RV’s slowed in the first half of this year but rebound strongly in the 2nd and momentum is still accelerating. Baird just updated its forecast for the industry raising delivery targets for calendar 2020 and 2021. They see the industry growing about 7.0% for the year with upside left for future growth.
RPM Internationa Riding Multiple Trends
RPM International (NYSE:) reported calendar and smashed right through the consensus. The company is seeing robust demand in both of its core segments, Consumer and Construction, and those trends are supported by wider trends within the economy. Not only is the move to stay at home and home-improvement sticky, all signs within the housing market point to a new Golden Age for housing. Basically, construction and consumer demand for adhesives, foams, sealants, and coatings is strong and expected to stay strong.
In regards to the dividend, this company has been making regular distribution increases for 18 years. The next increase should come with the next declaration which in turn could come at any time. The companies distribution CAGR is a bit lower, about 7.5%, but the balance sheet and results give no reason why it can’t be larger.