No matter what Jay Powell says, interest rates are topping out here—and that’s put three “stealth” stocks (growing payouts double digits!) in perfect position to gap higher.
This trio are midcap stocks—which we love now because of, well, history: at times like this, midcaps, particularly midcap dividend growers, soar. This chart paints the picture:
Midcaps Counter Rate Moves
There’s more to like about midcaps now, too, such as their mainly domestic focus, which makes them winners from the building boom here in the US as companies move home from basket cases like Xi’s China and Putin’s Russia.
But we’re not simply going to buy VO and call it a day. Fact is, midcap ETFs hold too many stocks that pay low (or no) dividends.
This doesn’t mean VO is useless to us, though! We’re simply going to “cherry-pick” its portfolio for holdings with spiking dividends and cash flows. Here are three that make the grade, ranked from third to first:
ETF Cherry-Pick #3: A 385% Dividend Grower With Curb Appeal
Lawn-equipment maker The Toro Co. (TTC) is a smart sleeper pick as rates roll over. Over the past decade, it’s delivered near-400% dividend growth, with recent payout hikes accelerating. On cue, its stock has followed along:
Toro’s “Dividend Magnet” Is Running Full Throttle
So why is Toro in third? Two words: interest rates. In its last earnings report, the firm reported strong results from its professional division (serving clients like golf courses) but softer sales to homeowners. The residential market could remain a bit soft until rates do definitively turn downward.
Moreover, Toro is paying 96% of its last 12 months of free cash flow as dividends—too tight for our liking. Management is still calling for solid 7% to 9% sales growth this year, but we’d like to see rates definitively turn down, and Toro’s payout ratio swing back the other way, before buying.
ETF Cherry-Pick #2: An Industrial Play With a “Refreshed” Payout
Cintas (CTAS) is another stock whose products are decidedly unsexy: it sells work uniforms, mats, cleaning supplies and first aid and safety products to a wide range of businesses. Its 0.94% current yield doesn’t exactly get our hearts racing, either.
Even so, Cintas should be on any serious dividend investor’s radar because, even though it did cut payouts during the pandemic (understandable, with workplaces shuttered), it’s gotten right back on track, raising its payout 53% in just the last two years.
That’s because Cintas’ results have come roaring back with the economy: in its latest quarter, revenue jumped 11.7% and adjusted earnings per share soared 16.7%. That means we’ve got more payout growth to come, especially with dividends accounting for just 33% of its last 12 months of free cash flow, far below my 50% “safety line.”
That snags second spot for Cintas, but it falls short of the crown because it trades at 39-times its last 12 months of earnings—high for a stock posting strong numbers against early last year, when we were still emerging from lockdowns. That performance will be tough to match next year.
The bottom line? Put this one on your watch list—if (when!) we get a recession, it could be worth picking up on the dip.
ETF Cherry-Pick #1: A Savvy Builder Laying the Foundation for a Big Yield
AECOM (ACM) is a construction-and-design firm that’s profiting from soaring government infrastructure spending. And there’s no end in sight to that particular outlay: most of the $1.25 trillion earmarked for roads, bridges and the like in the Infrastructure, Investment and Jobs Act and the Inflation Reduction Act is still waiting to head out the door.
But it is heading out the door—and showing up in AECOM’s backlog, which hit a record high in the latest quarter.
Meantime, AECOM continues to execute and tap into wider trends. Earlier this month, for example, the Chemours Company (CC) hired AECOM to oversee construction of its green-hydrogen facility in France.
The government of Ukraine has also brought in AECOM to help with the country’s rebuild from Putin’s despicable war. Under the deal, AECOM will share its engineering expertise on specific projects and help manage Ukraine’s overall reconstruction plan.
It’s a clear case of doing well by doing good. Good for them. Go AECOM.
Meantime, we get to grab a dividend in its youth. AECOM only started payouts in early 2022, but it already delivered a 20% hike earlier this year. And with its backlog, revenue and earnings all trending higher, I expect another strong payout hike next year.
AECOM’s Dividend Gets Off to a Hot Start
— Brett Owens
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As we just discussed, NOW, just before rates top out, is the time to buy dividend growers for HUGE gains—and payout hikes—for decades to come!
The chart we looked at earlier is crystal clear: every time rates pull back, stocks soar. And by grabbing “megatrend” midcaps with fast-growing payouts (and buybacks!), you’ll turn the tables even more in your favor.
Sometimes investing really is this simple!
Which is why I’m urging all investors to grab the 5 stocks my proven “Dividend Magnet” system (which I’m eager to share with you today) recently turned up. One of these winners booked 600% dividend growth—driving 665% price growth!—in just the past decade (including the 2022 dumpster fire).
600% Dividend Growth Ignites Share Price
And there’s more. Another of this “fabulous 5” delivers double-digit dividend hikes every year. It’s a perennial grower we really want to own forever. Check out how the dividend has driven massive total returns over the last three, five and 10 years:
Source: Contrarian Outlook
