A dividend raise is typically a welcomed event for investors for a couple of reasons. The most obvious one is that the stock will be paying them more money that they can either pocket or reinvest in the stock. The second reason is that it is often a sign of a company that is performing well, as it usually means that earnings are up and cash flows are higher.
However, that is not always the case, as sometimes companies will boost the dividend to appease investors when they really don’t have the excess cash flow to do so. That is not the case with these three stocks, all of which just raised their dividends and look like solid buys for income investors.
JPMorgan Chase
JPMorgan Chase (NYSE:JPM) is the biggest and most well-run large bank in the country. It has consistently outperformed its competitors over the years and is built on the foundation of its so-called fortress balance sheet, a term CEO Jamie Dimon uses to describe the company’s focus on liquidity and financial stability.
An outgrowth of that strategy is its consistent dividend, which it just raised for the 13th consecutive year dating back to 2011. On March 19, JPMorgan Chase announced that it was bumping its quarterly dividend up to $1.15 per share, from $1.05 the previous quarter, or $4.60 per share annually. That dividend increase comes at a yield of 2.36%, which is higher than the average yield on the S&P 500, and its payout ratio – or the amount of earnings paid out in dividends – is just 25%, which means JPMorgan Chase can easily afford the raise.
JPMorgan Chase’s stock price is up 13% year-to-date and is reasonably valued with a forward price-to-earnings (P/E) ratio of 12. With its fortress balance sheet it should continue to outperform and feed its dividend.
Dick's Sporting Goods
Dick's Sporting Goods (NYSE:DKS) just had a blowout quarter where it set a record with $3.9 billion in sales, up 8% year-over-year. Its stock price hit an all-time high, climbing over $224 per share in March, and its stock price is up about 52% YTD. The strong quarter capped off a great fiscal year when the sporting goods company was able to lower its debt and increase its operating cash flow to $1.5 billion, or 12% of sales, from $1.3 billion, or 10% of sales the previous year.
Its capital strength and high performance allowed it to raise its quarterly dividend, payable April 12, to $1.10 per share – a 10% increase over the previous quarter. This will be the 10th straight year that the retailer has boosted its dividend. Dick’s will have an annual pay out of $4.40 per share at a yield of about 2.00%. It also has a very manageable payout ratio of 31%, so it should be able to sustain it, given its history, capital strength, and its outlook for sales and earnings growth in 2024.
Dick’s looks like a solid buy for its dividend, reasonable valuation, and growth potential.
Colgate-Palmolive
Colgate-Palmolive (NYSE:CL), the maker of consumer staples like soap, toothpaste, and other household and healthcare products, has been around for a long time. And since 1895, it has consistently paid out a quarterly dividend. Even more impressive is the fact that for the last 61 straight years, it has increased its annual dividend, making it a Dividend King – an elite group of stocks that have increased their dividend for at least 50 years. Only six U.S. stocks have longer streaks of raising their annual dividend than Colgate-Palmolive.
On March 14, the company boosted its quarterly dividend to 50 cents per share, up from 48 cents per share the previous quarter. The new dividend will be paid to investors on May 15 at a yield of about 2.26%. Its payout ratio is a little high at 59%, which would normally be a bit of a red flag for investors. But it does not seem to be much of a concern for Colgate-Palmolive for a few reasons. One, it has consistently been in the 50% range for the past several years, so the ratio is not out of the ordinary.
Also, the company has been growing its earnings and expects profit margin expansion and double-digit earnings per share growth in 2024, which should lower the payout ratio. In addition, it has improved its balance sheet by increasing its cash flow from operations by 48% to $3.7 billion and raised its free cash flow before dividend to $3 billion, from $1.86 billion the previous year.
Colgate-Palmolive, like the other two stocks, should have no problem extending its impressive streak of dividend raises. The stock price is up 10% YTD and has a pretty reasonable forward P/E of 25. The reliable income this stock generates makes it one to consider for income investors.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
