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Investors have a lot on their worry list these days ... the Dow Jones and the S&P 500 are continually gyrating while trying to navigate through a possible ninth year of an aging bull market and investors are wondering when it will all com to an end.
The headlines reacting to the slightest market hiccup don’t help. Financial news websites and television networks are dependent on advertising revenue. Ad revenue, in turn, is dependent on readers and viewers. Saying “nothing to see here, move along” isn’t going to get people to pay attention; leaning toward hyperbole will.
I am frequently asked if a correction is on the horizon, but nobody can know with certainty when the next correction will occur. I understand why you may have concerns about one happening sooner rather than later, but I’ll caution that you could miss out on significant upside return if you try to time the market. Long-term portfolios focus on just that: the long term. And over the long term, the market has grown.
Buying attractive stocks and holding onto them as long as they remain attractive is a sound strategy. The 5 Rising-Dividend Stocks we recommend in this free report are a great starting point. Not only do they deliver a steady stream of income, they’ll likely grow your investment through price appreciation.
The first stock I want to tell you about is a virtually recession-proof company that has been in business since 1837 and has paid a dividend for a remarkable 126 years straight.
Attractively priced global chemical company with room for more dividend growth
Eastman Chemical Co. (EMN) is a global specialty chemical company that produces a broad range of advanced materials, additives and functional products, specialty chemicals and fibers that are found in products people use every day. Eastman serves customers in more than 100 countries around the world and employs approximately 14,000 people.
Eastman Chemical started paying its dividend consistently in 1994 and has increased it for eight consecutive years. Dividends have increased at an annualized rate of 13.2% over the last five years, while earnings have grown an annualized 6.3% over the same period. The company’s most recent increase was in December 2017, when they boosted the payment by 9.8%.
During 2017, Eastman returned over $500 million to shareholders through share repurchases and dividends. The company generates in excess of $4.93 per share in pre-dividend free cash flow and has a free cash flow payout ratio of 40%. Its earnings payout ratio is a mere 29%, showing it has room to grow its dividend in the future.
EMN shares currently yield 2.3%, based on an indicated dividend of $2.24 per share. This falls above the high end of the five-year average dividend yield range of 2.2% to 1.6%. The higher the current dividend yield in relation to its historical average, the more attractive the stock on a dividend yield basis.
Analysts polled by Thomson Reuters expect Eastman to grow earnings by 8.8% over the next three to five years.
Given the company’s tremendous free cash flow generation and low payout ratio, there is little doubt that the company should be able to continue to boost its dividend, and that earns EMN a place in our rising-dividend stock portfolio.
The next company I want to tell you about is one of the newest additions to the portfolio. It has grown organically and through acquisitions over the last several years.
Given the company's tremendous free cash generation and reasonably conservative balance sheet, there is little doubt that the company should be able to continue to boost its dividend, and that earns PG a place in our rising-dividend stock portfolio.
The next company I want to tell you about has been in business almost as long as Procter & Gamble. It was founded in 1852 and has grown to become the fourth-largest bank in the U.S.
The regional bank that has been significantly expanding its footprint
Founded in 1866 as The Huntington National Bank, today Huntington Bancshares Inc. (HBAN) still operates from its Columbus, Ohio, founding location in the heart of the Midwest. Huntington is a regional bank operating in Ohio, Illinois, Indiana, Kentucky, Michigan, Pennsylvania, West Virginia and Wisconsin.
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Huntington is rapidly growing. After acquiring FirstMerit in 2016, Huntington expanded its scale and efficiency. As a comparison, the company’s third-quarter 2017 earnings grew 109% over the third quarter of 2016. Analysts expect Huntington’s earnings will grow 30% from 2017 to 2018, and 11% over the next three to five years.
Huntington started paying dividends in 1971, and has increased its payment for seven consecutive years. Over the last five years, the company has increased its dividend at an annualized rate of 22.9%, significantly above the regional banks industry median of 5.2%.
In addition to providing banking services, the company is involved in wealth management, commercial loans, equipment leasing, brokerage services and more. Huntington Bancshares is one of the many companies that will benefit from recent changes in tax legislation.
Huntington’s current dividend yield of 2.8% is above its five-year average of 2.0%, implying that shares are relatively undervalued. Management has indicated its desire to continue to return capital to shareholders.
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Old-school chipmaker with improving margins and free-cash-flow growth
Tech companies get an unfair rap as not being good dividend payers, but this next company has increased its dividend payment an average of 24% a year over the last five years and we expect them keep on going from there.
Texas Instruments (TXN) is a worldwide semiconductor company. The company has design, manufacturing or sales operations in more than 35 countries and sells its chips to electronics designers and manufacturers globally. Texas Instruments operates in two segments: analog and processing.
In addition to its leading position in analog chips, Texas Instruments is among the world’s largest makers of embedded processing products, which include digital signal processors and microcontrollers.
Last year, the company exited its wireless business and is focusing its resources on analog chips and embedded processing. This renewed focus on analog chips should be beneficial to Texas Instruments’ long-term earnings, as its analog chips generate higher margins. In addition, the changes will result in lower resource and investment demands.
We continue to be drawn to Texas Instruments’ commitment to returning cash to shareholders through dividends and repurchasing shares. The company currently trades with a 2.2% dividend yield, within its five-year range of 1.8% to 2.6%. The company has paid a dividend every year since 1962 and increased its annual payout for 14 consecutive years. In addition to the dividend increases, in September 2017 the company increased its share repurchase authorization by $6 billion, for a total authorization of $10 billion.
Texas Instruments has a current earnings payout ratio of 45%, which is slightly above its historical norms. The company currently has a free-cash-flow payout ratio of 47%, which is also above its historical norm but still quite reasonable. The company generates strong operating cash flows, more than $4.8 billion over the last 12 months, while capital expenditures were $574 million over the same period.
Texas Instruments has increased its dividend payment an average of 24.0% a year over the last five years and, given its strong free cash flows and earnings coverage, we expect the company to continue increasing its dividend payments going forward as well as repurchasing shares. That makes this a great time to consider Texas Instruments for your portfolio.
Texas Instruments isn’t the only dividend-paying tech stock we like. Get immediate access to our full portfolio when you start a no-risk trial of our Dividend Investing newsletter service today. Click here to learn more.
Most people don’t think of dividend growth when they think of biotechnology companies, but this one made our Top 5 list because it has recently shifted its focus to delivering steady dividends and boosting its dividend payment by double-digits.
Biotech company with double-digit
|Growing Dividend Payments. Not only must all companies currently pay dividends, but they must also have either higher dividend payments this year relative to last year, or a reasonable expectation that dividends will increase in the future.
|Positive Free Cash Flow. We look for a ratio of cash flow to dividends that is above 1.0 for most industry categories.
|Improving Trends in Sales and Earnings. The potential for rising share prices is just as important as the dividend direction. We look for companies that have good business models for promoting earnings growth.
|Strong Balance Sheet. We pay close attention to the current ratio and liabilities-to-assets ratio.
|Attractive Valuations. A stock's price-earnings ratio should be favorable for investors.
Of course, our AAII Dividend Investing subscribers have a front-row seat as we uncover new companies that make the cut.
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DI Research Committee
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