The market continues to hit new record highs as investors remain bullish in the face of lower interest rates and trade progress between the U.S. and China.
While a full trade deal is well off in the distance, the U.S. and China have agreed to a "Phase One" trade deal that pushed the major indexes to fresh record highs. Lower interest rates should help spur economic growth, but they also have the potential to dampen the bull market as investors transfer money out of the market and into traditional fixed income assets in the hunt for better yields.
If we do see a money transfer out of the market, dividend-paying stocks will be partially insulated, and companies that are growing their dividends will be particularly attractive.
With the market near its record high and interest rates falling, there is a good chance of a correction in the near year. The situation can be confusing to say the least. Economic conditions remain favorable, and the recent earnings season was strong. Investors want to stay in the market but are understandably worried about giving back some of their recent gains.
If you are looking for a safe place to put your money to work, consider these three stocks that analysts believe will trade higher and are about to announce their next dividend increase.
SJW Corp. (SJW)
Water utility company SJW Corp. (SJW) has a long 51-year streak of dividend increases. The stock currently has a 1.7% yield, and a 69% payout ratio. Given the high payout ratio, investors should not expect a huge increase this year. Last year SJW boosted its quarterly dividend by 7.1%. Look for the company to increase its quarterly distribution from $0.30 to around $0.32, good for a 6.2% increase. SJW trades at 30 times earnings, and analysts expect the company to show annual earnings growth of 14% over the next five years. The company has a mixed earnings track record but if it is able to hit estimates moving forward the stock has a lot of upside potential. Analysts see a lot of upside potential in the stock at its current value. SJW trades at $69.90 with an average price target of $77.40.
Dunkin Brands (DNKN)
Fast-food chain operator Dunkin Brands (DNKN) has a modest 6-year streak of dividend increases, and the stock currently has a yield of 2.0%. The stock is currently trading at 22 times earnings which analysts forecast to rise at an annual rate of 8% over the next five years after rising 13.7% annually over the last five years. The stock has traded sideways over the last three months. Dunkin posted mixed Q3 numbers at the end of October with an earnings beat and a revenue miss. The stock initially gapped higher on the earnings beat, but shares have fallen in the months since the report, and the company will report its next set of numbers January 30 with the consensus calling for earnings of $0.70 per share, up from $0.68 year over year. The company will announce its next quarterly dividend during the first week of February with the stock trading ex-dividend during the first week of March. DNKN has a payout ratio of 48%. Last year the company boosted its dividend by 7.9% and this year's increase will likely be in the same range. Look for the quarterly payment to rise from $0.375 per share to around $0.405 for an 8% increase. Analysts see a lot of upside potential in the stock. DNKN trades at $74.82 with an average price target of $81.50.
Archer-Daniels Midland (ADM)
Archer-Daniels (ADM) is a true dividend aristocrat with a 43-year streak of dividend increases. The stock currently offers a 3.3% yield and will announce its next dividend increase during the first week of February. ADM has a 55% payout ratio, so the company can easily afford to extend its streak of increases when it announces its next quarterly distribution. Last year the company boosted its dividend by 4.5% and with investors already receiving a 3.3% yield they should expect a similar increase this year. Look for the quarterly payment to rise from $0.35 per share to around $0.37 for a 5.7% increase. ADM will trade ex-dividend mid-February. The stock is trading at $46.34 with a forward P/E of 14.2 and analysts have an average price target of $48.43.
