One of the most common mistakes I see new investors make is to chase yield. They see an 8%, 9%, or 10% yield on a stock and, well, that’s all they look at.
Business model? Bottom-line growth? Balance sheet strength? Pricing power? Valuation? Nah. High yield, baby. Well, a high yield looks great on paper.
Until you see poor long-term investment performance. Also, a high yield doesn’t matter much over the long run if the dividend isn’t growing or, worse yet – if the dividend is being cut.
See, I focus on high-quality dividend growth stocks that represent equity in world-class businesses. These aren’t high-yield junk stocks.
They’re high-quality stocks with good yields and, most importantly – safe, growing dividends. If your dividend can’t grow, inflation will eat you alive.
You want to make sure you can keep up with inflation over the coming decades. And the best way to do that is to protect, or even improve, your purchasing power is with regular increases in your passive income.
Today, I want to tell you about three dividend growth stocks that just increased their dividends. Ready? Let’s dig in.
The first dividend increase I want to tell you about came from Duke Energy (DUK).
Duke just increased their dividend by 2.1%.
Not a massive raise. But the attractive thing about Duke is the reliable nature of their fairly sizable dividend and the low-single-digit annual growth of the dividend. Duke is one of the largest utility companies in the United States. They reliably provide power to millions of customers. And those customers reliably pay their utility bills, which results in reliable revenue, profit, and dividends. And as the price of power goes up, the dividend also goes up, as Duke has been demonstrating for almost two straight decades.
If you’re living off of dividends, that’s the kind of track record you want. It’s reliable, durable dividend income you can count on through thick and thin. And Duke is no slouch in the yield department, either. It yields 3.9%. That’s about three times higher than what the broader market yields. The stock offers a great combination of yield, reliability, and growth that can make it suitable for investors who want to live off of dividends and sleep well at night.
Duke is up more than 13% YTD, but the valuation doesn’t look unreasonable.
I wouldn’t say the stock is extremely cheap, either. Most basic valuation metrics are within spitting distance of their respective recent historical averages. The P/CF ratio, for example, is 8.1. That is a bit below its five-year average of 8.4. It’s buyable here. But a dip would make it even more appealing.
The second dividend increase you should know about came from Computer Services (CSVI).
Computer Services just increased their dividend by 8%.
An 8% increase in passive income for doing absolutely nothing other than holding stock is always most welcome. I mean, how can you not be happy with something like that? Also, check this out. The dividend is up fourfold over the last 10 years. This company is able to hand out generous dividend increases because it’s growing like clockwork – EPS has compounded at an annual rate of nearly 10% over the last decade.
This marks the 50th consecutive year of dividend increases for the technology solutions provider.
This stock doesn’t look cheap, but it never does.
It’s a thinly traded over-the-counter stock that flies way under the radar. Despite that, the valuation is always elevated. The five-year average P/E ratio is 22.5, so this is never what you might call a “cheap” stock. But with the P/E ratio now over 28, the valuation is richer than it usually is. That said, this company deserves a high multiple. It’s fundamentally excellent across the board, including no debt. I mean, the stock is up 200% over just the last five years. It’s been a phenomenal long-term investment. And it will likely continue to be one.
Last but not least, let’s talk about the dividend increase that came in from J.M. Smucker (SJM).
J.M. Smucker just increased their dividend by 10%.
Take that, inflation. A 10% “pay raise” for doing nothing other than just holding stock in a brokerage account. That’s so easy, even I can do that. I don’t know if I ever got a 10% pay raise at my old day job. But even if I did, I would have had to work extra hard to get it. Now, all I have to do is be a shareholder. Being an investor is the best and easiest job I’ve ever had.
Yep. This puts them in the same league as Dividend Aristocrats. Playing with the big boys now. And the company celebrates the 25th year of dividend raises with a larger-than-average increase – 10% is measurably higher than their 10-year DGR of 7.9%. You’re pairing this kind of significant, reliable dividend growth with the stock’s current yield of 3%. So you get a market-beating yield and inflation-beating growth. I don’t know who or what is left to beat.
Surprisingly, this stock looks undervalued.
The stock’s P/E ratio of 16.8 is below its five-year average of 18.3, not to mention well below the broader market’s earnings multiple. Most other basic valuation metrics follow suit. If you’re looking for some more exposure to basic food staples in your portfolio, J.M. Smucker ought to be on your radar, especially after this nice dividend increase.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
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