Interest rates are once again on the front of every trader's mind as we head deeper into the summer months. Since the start of the year expectations have fallen from a couple rate increases during the year, to no rate hikes this year, to expectations of at least one if not two rate cuts before the end of the year.
As interest rates fall, the market will start to rise as investors look for better yields in the market. Dividend paying stocks will benefit, and in particular will dividend stocks with a proven track record of boost their payouts each year.
It remains unclear if the Federal Reserve will indeed start to lower rates, but a prolonged trade war with China definitely poses a threat to global economies, which in turn could result in a rate cut or two in the U.S. as other nations around the globe start to make similar moves.
If you are expecting rate cuts to come, you may want to consider the following stocks, which are not only respected dividend stocks, but are also about to announce their next dividend increase.
J.M. Smucker (SJM)
J.M. Smucker (SJM) has traded lower over the last month, but the stock still remains in the upper end of its 52-week range. The company has a solid dividend history, with a 17-year streak of increases and the stock currently yields 2.9%. The stock also offers a good value with shares trading at just 13.3 times future earnings which are forecast to rise at an annual rate of 4.6% over the next five years. The company reported mixed numbers at the start of June with a positive earnings surprise and a small revenue miss. The revenue miss pushed shares slightly lower, but the earnings beat has kept the stock from losing too much of its value, and given the current valuation and interest rate environment I see traders coming back into the stock for its value and expected upside. SJM trades at $117.36 with an average price target of $119.75. The company will announce its next dividend increase mid-July with the stock trading ex-dividend mid-August.
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Kellogg (K)
Kellogg (K) has traded in a sideways trend at the lower end of its 52-week range though 2019, but the stock remains an attractive value with a forward P/E of just 13.2. While the stock has not managed to break out of its sideways trend so far, dividend hunters could start to return as interest rates fall and K offers a 4.2% yield with a 14-year streak of dividend increases. Kellogg's biggest problem right now is its inability to grow earnings, which were up just 2.8% per annum over the last five years. Looking ahead analysts see more anemic annual growth of just 0.8% over the next five years. The low growth will be a problem unless the company is able to turn things around and drive profits higher, but the low growth has already been priced into the stock, and with such a negative already priced in it would not take a lot of positive news to push shares higher, and even if the stock remains steady investors will still buy into it's 4.2% yield as interest rates fall. The company will announce its next dividend increase in late-July with the stock trading ex-dividend in late August.
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Delta Airlines (DAL)
Delta Airlines (DAL) has boosted its dividend each of the last five years, and the stock currently yields 2.5%. The stock is sensitive to oil prices which are currently moving higher in response to uncertainties with Iran, but prices remain well below 2018 highs and should not have a material impact on airlines unless we see oil surge higher. DAL sold off in May with the overall market, but has recovered most of its recent losses and is again in the upper end of its 52-week range. Delta has shown solid annual earnings growth of 12.2% over the last five years, and looking analysts expect more of the same with forecast annual earnings growth of 12.6% for the next five years. DAL trades at just 9.8 times earnings so there is definitely value in the stock as long as the company is able to deliver on its bullish forecasts. The company should announce its next dividend increase in mid-July with the stock trading ex-dividend around two weeks after the announcement.
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Dover Corp. (DOV)
Dover Corp. (DOV) is a diversified industrial company with a very impressive 63-year streak of dividend increases. The stock currently yields 1.95%. Dover will announce its next increase at the start of August, with the stock trading ex-dividend toward the end of August. DOV stock is currently trading just pennies below its all-time high and bullish sentiment remains in the stock. Earnings growth is accelerating, with analysts expecting earnings to rise 10.9% per annum over the next five years after rising 7.2% annually over the last five. DOV is trading at 15 times future earnings, so the price is reasonable and shares should continue to trend higher as long as the company does not deliver an earnings miss in the upcoming quarters. Q1 results topped estimates on both the top and bottom line and the company will next report earnings on July 18 with the market expecting earnings of $1.55 per share versus $1.30 during the same period last year.
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