7 July Dividend Hikes to Buy for 12% Yearly Gains, Forever

Most people are chasing big dividend payers right now in this “3% world” we live in. Meanwhile, a small group of “hidden yield” stocks are quietly handing smart investors growing income streams PLUS annual returns of 12%, 17.3%, or more.

Let’s talk about how to find these stocks, and bank 12% returns or better every single year, by following a simple two-step formula.

See, everyone wants dividend stocks with good current yields. It’s easy to scan a newspaper or financial website and pick out the stocks that are paying 3%, 4%, 8% or whatever number you might consider “good.”

Yet that’s NOT the right way to pick dividend stocks.

You have to do more work to figure out if those yields are actually supported by the company’s cash flows, earnings power, long-term business prospects, etc. You have to sift through the same company’s history to determine how long it’s been paying those dividends. How consistently it’s been paying those dividends. And especially if it’s been regularly increasing its dividend payments.

The best time to buy a dividend grower is anytime. But we can tip the odds in our favor even further when we buy at moments like these – when the share price is due to “catch up” to the dividend.

Which brings me to step 1 of our 12% return formula…

Step 1: Buy Before Dividend Hikes

The “efficient market” is always slow to adjust to higher dividend levels. Folks who scan the papers are looking at trailing yields. They’re not considering next month’s payout increase, which is likely not yet priced into the stock quote.

Which means we should start our search for 12% by considering companies set to hike in the next month or two.

Here are nine firm’s poised to give their investors a payout raise in June.

Step 2: Review Next Month’s Dividend Hikes

Every dividend that eventually “accelerates” begins with a simple payout hike. We’ll talk about purchase timing in a moment. First, let’s review the seven stocks most likely to raise their dividends next month.

Discover Financial Services (DFS)
Dividend Yield: 1.8%

Financial stocks aren’t necessarily the most generous of dividend payers, with many of them shelling out in the 1%-2% area. Such is the case with credit card purveyor Discover Financial Services (DFS), which doesn’t even clear the 2% bar.

To its credit, DFS has pumped up its dividend significantly over the past few years, turning a 20-cent payout in 2014 into today’s 35-cent offering – a 75% increase.

To its detriment, the company has done so amid a roughly 15% contraction in earnings over roughly the same time.

Discover’s (DFS) Earnings Arsenal Is Waning

Still, the company did report a nice third quarter in April that included a 27% bump to the bottom line.

Expect Discover’s next dividend increase to come sometime in mid-July.

JM Smucker (SJM)
Dividend Yield: 2.9%

Jam master JM Smucker (SJM) is having itself a trying 2018, off double digits less than halfway through the year. That comes despite a beat on both the top and bottom lines back in February – the company’s $2.50 in earnings topped expectations by 37 cents, while revenues of $1.9 billion just slid above the $1.89 bill mark. Of particular interest was a gain in cash from operating activities, from $419.5 million to $469.0 million.

Perhaps investors aren’t pleased with guidance, which has net sales coming in between flat and down slightly for the year.

Investors will be hoping for a pick-me-up in the form of a dividend increase announced sometime in mid-July. SJM has lifted its dividend by almost 35% over the past five years, and still has ammunition enough to keep perking up the payout.

Kellogg (K)
Dividend Yield: 3.4%

Kellogg (K) might command a horde of popular brands including Frosted Flakes, Froot Loops, Rice Krispies, Pringles, Pop-Tarts, Eggo, Kashi, Morningstar Farms and more. But it doesn’t command much respect among Wall Streeters – nor has it for some time. The stock has essentially been dead money for the past five years, and it has posted a 5% loss this year versus a roughly flat market.

That’s despite a significant bump since its first-quarter report in early May. At the time, the company reported a 69% jump in earnings as well as top- and bottom-line beats, thanks in part to strength in its frozen-foods unit.

Kellogg leaves much to be desired, not just on a share-appreciation basis, but also in the dividend-growth arena. The company’s payout expansion has slowed to a crawl, ranging between about 2% and 4% annually for the past several years.

Kellogg’s (K) Dividend Growth Is Flattening Out

Education Realty Trust (EDR)
Dividend Yield: 4.1%

Education Realty Trust (EDR) is a niche real estate investment trust (REIT)  that specializes in collegiate housing, serving 79 communities across 25 states. Some of its most recent projects have been focused on Pennsylvania’s Lehigh University, as well as Mississippi State University.

This has been a roller-coaster stock for several years, including an up-and-down 2018 that has EDR sitting on fractional losses for the year-to-date. That hasn’t been helped much by a somewhat lackluster quarter for the period ended in March – the company’s funds from operation (FFO) declined 5% year-over-year on a 1.5% drop in same-community net operating income.

Also disappointing has been the dividend growth in this real estate name. The payout has improved by a modest 18% since 2014, with only penny-per-share hikes since 2015. Investors certainly will want to see better in mid-July, when the company typically announces its annual improvement.

National Retail Properties (NNN)
Dividend Yield: 4.6%

National Retail Properties (NNN) is a so-called “triple-net lease” REIT that boasts 2,800 properties across 48 states and 37 industries. It’s called a “triple-net” lease because when it leases properties, it puts the triple onus of taxes, insurance and maintenance on the tenant, too. So while the REIT charges less overall (because it’s not covering those expenses), it’s a far more predictable revenue model because there’s no guesswork as to what taxes will be in a given year, or what building issues will need to be addressed.

Like many retail REITs, National Retail Properties has been on the slide for a couple of years as the industry suffers the wrath of an ever-encroaching Amazon.com (AMZN) as well as other e-commerce headwinds. That said, the damage hasn’t been too bad simply because so many of NNN’s tenants aren’t direct competitors with Amazon. Consider that top tenants at the moment include companies such as 7-Eleven, Mister Car Wash and LA Fitness. As a result, funds from operation have actually been improving for years.

Dividend growth hasn’t exactly been explosive, however. The company’s payout has advanced by just 17% since 2014. And there’s no reason to expect anything different in mid-July, when the company is expected to deliver its 29th consecutive annual increase.

National Retail Properties (NNN) Is Making Money. Now It Needs to Give More Back.

Duke Energy (DUK)
Dividend Yield: 4.9%

What list of dividend growth stocks would be complete without a utility stock?

Duke Energy (DUK) is a Charlotte, North Carolina-based electric utility that serves roughly 7.6 million customers across 95,000 square miles of service area, and owns 49,500 megawatts of generating capacity.

This is one of the steadier dividends in the game, with Duke doling out a regular paycheck to investors for 92 consecutive years. And while it doesn’t sport a particularly long dividend growth history compared to the likes of Southern Company (SO), it still has more than a decade under its belt and has improved its payout by about 14% since 2014. The next payout hike should come sometime in the first couple weeks of July.

The yield also is getting help from a 10% year-to-date decline – more than twice as worse as the utility sector as a whole.

Enterprise Products Partners LP (EPD)
Distribution Yield: 5.9%

Energy master limited partnership (MLP) Enterprise Products Partners LP (EPD) has built an impressive income resume that includes 55 consecutive quarterly distribution increases. And that streak should extend to 56 consecutive quarters sometime in the first full week of July.

It’s likely to be a token increase, mind you, since it makes four such improvements in any given year. It also doesn’t add up a ton – the company’s distribution has inflated by just 22% since the start of 2014.

EPD is one of the largest energy partnerships in the world, boasting roughly 50,000 miles of natural gas, NGL, crude oil, refined products and petrochemical pipelines, not to mention storage facilities, processing plants and other assets.

It’s also no slouch, producing record net income, gross operating margin and adjusted EBITDA during its most recently reported quarter.

Step 3: Earn 12% Annual Returns For Life!

Robust dividend growth separates the winners from the losers.

And I’m not just talking about the stocks.

Low dividend growth goes hand-in-hand with slow and no growth – and even eventual decay. Hitch your wagon to the supposedly “safe” blue chips that most financial pundits shill for, and you’ll quickly be looking for part-time work a few years into your retirement.

Get up to 14 dividend paychecks per month from safe, reliable stocks with The Monthly Dividend Paycheck Calendar, an easy-to-use system that shows you which dividend stocks to pick, when to buy them, when you get paid your dividends, and how much.  All you have to do is buy the stocks you like and tell them where to send your dividend payments. For more information Click Here.

Two Stocks to Buy and One to Sell with Oil Prices Climbing Again

President Trump is at it again… on June 13, he again blamed OPEC for the rising price of oil. In a tweet he said, “Oil prices are too high, OPEC is at it again. Not good!”. This follows a similar tweet on April 20 when President Trump said “oil prices are artificially Very High” due to the supply curbs by OPEC and its allies.

Trump’s tweet comes ahead of a meeting next week of oil ministers from OPEC and Russia who are under pressure from the U.S. to raise output by at least one million barrels of oil a day, after more than a year of enacting production cuts.

So is OPEC to blame? Yes and no. There are other factors at play here such as a robust global economy that has driven up demand for oil. For example, if you look at just China and India, they have imported 962,000 barrels per day more in the first five months of 2018 than in the same period last year.

But the real problem is on the supply side, with President’s Trump’s imposition of new sanctions on Iran exacerbating an already bad situation. Let me explain…

Oil Supply Constraints

I found it interesting that well-known hedge fund manager Pierre Andurand responded to President Trump’s tweet saying an oil price spike is coming because the number of countries with excess production capacity are few. “OPEC has the lowest spare capacity ever right now. There is going to be a real issue. Prices will be above $150 in less than 2 years. Eventually higher prices will bring more supply. But right now [there is] too little supply coming over the next few years despite US supply growth,” he tweeted.

Andurand is someone to listen to in the oil market… he has returned to his investors a cumulative 560% since 2008. But is he just talking his ‘book’? Last year, he began accumulating positions betting on a return to $100 a barrel oil.

Related: Big Oil Bets Big on Big Data to Increase Revenues and Cut Costs

Unfortunately, for us consumers of oil Andurand is largely correct…

First, supply and demand right now in the oil market are roughly in balance at about 100 million barrels a day. BUT the so-called shock absorbers that would cushion any interruption in supply or spike in demand are at dangerously low levels.

Commercial stocks in the world’s major economies currently stand at 2.8 billion barrels, composed of crude (1.1 billion barrels), other liquids (300 million barrels) and refined products (1.4 billion barrels). The level of these inventories is already 27 million barrels below the five-year average, according to the International Energy Agency.

Then you must consider that the vast majority of inventories are held for operational reasons to ensure the uninterrupted flow of oil from wellhead to final customers. Global oil consumption has increased by more than 6 million barrels per day over the past five years, so other things being equal, the oil industry will want to hold more inventories for operational reasons. That leaves only a small percentage, generally less than 15%, actually available to act as a shock absorber.

For the last four decades, the oil industry’s second line of defense has been the existence of significant volumes of spare production capacity. But today, nearly all spare production capacity is held by Saudi Arabia, with smaller volumes held by Russia, Kuwait and the United Arab Emirates. The other oil producers have no spare capacity.

Add it up and OPEC’s spare capacity currently amounts to less than 2 million barrels per day, according to the U.S. Energy Information Administration. That is not good when you consider that in its latest oil market update, the International Energy Agency (IEA) said that it is possible that exports from Venezuela and Iran could decline by as much as 1.5 million barrels per day or about 30% of their current output by the end of 2019. Iran sanctions may take nearly a million barrels a day off the market and with the sorry state of Venezuela, oil production there may totally collapse.

To compensate for that lost output, Saudi Arabia and the others could boost production by somewhat over 1 million barrels per day, according to the IEA. But if that happens, OPEC spare capacity will be reduced to less than 1 million barrels per day – the lowest level since 2004!

And even though US production from its shale fields is on the rise, keep in mind that most U.S. refineries cannot handle that type of light sweet crude and run on the heavier crude such as from Saudi Arabia. And pipeline constraints mean much of that shale oil cannot reach the marketplace.

Oil Price Rise Investments

So how can you profit from this, or at least, make enough money to offset what will surely be rising gasoline prices?

Keep in mind that many oil producers are generating more free cash at current prices than they did at $100 per barrel before the market crashed four years ago. This is because of deep cost cuts during the downturn, with average operating expenses per barrel down by a third and development costs halved thanks to cost-cutting since 2014. That means most oil majors can now cover dividends and capital expenditure at prices around $50 per barrel, meaning that, at anything above that level, they are very profitable.

Of the larger oil companies, my favorite is Norway’s Equinor ASA (NYSE: EQNR), which recently changed its name from Statoil to emphasize its long-term move pivot away from oil and toward alternative energy.

But for now, the company is enjoying the benefits of higher oil prices it is earning (earnings per share were up 24% in 2017) from its rich North Sea oil holdings, including the massive Johan Sverdrup oil field. It’s stock up an impressive 26% year-to-date.

More Reading: Buy This Commodity Set to Become More Precious Than Oil

In its latest earnings report, the company lifted its adjusted net earnings to $1.47 billion, from $1.11 billion in the same period last year. Analysts had, on average, expected $1.61 billion. Cash flow from operations increased by 20% to $7.1 billion.

Here in the U.S. I like ConocoPhillips (NYSE: COP), which is also up 26% year-to-date. This should continue as the company expects compound annual growth rate (CAGR) of production through 2022 of 22%. Not surprising when you consider that the bulk of the acreage it holds in the Eagle Ford shake and Bakken shale are rich in oil. Another plus is that on February 1, ConocoPhillips entered into a deal with AnadarkoPetroleum to buy a 22% stake in the Western North Slope of Alaska. The company will also acquire the stake of Anadarko in the Alpine pipeline. Once the deal concludes, ConocoPhillips’ cash flow will rise from incremental production increases.

But for every winner, there is a loser. And the biggest loser, if oil prices continue to rise, is the airline industry. Overall, the International Air Transport Association says it expects net income of $33.8 billion for global airlines this year, down 12% from its December forecast.

Jet fuel represents a third of airlines’ expenses and industry executives predict costs will be passed on to consumers via higher fares. If I had to pick one loser among the airlines, it would be American Airlines (Nasdaq: AAL), which has added fuel costs to its other problems (overcapacity, etc.)

American lowered its profit outlook for 2018 due to an expected $2.3 billion rise in fuel costs this year. It unfortunately had listened to the short-term Wall Street focus… why waste money hedging – everyone ‘knows’ oil is headed lower, raise your profits by not hedging. Its stock is down 22% over the past three months.

Look for even more winners and losers if the oil price continues its ascent.

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