After a volatile year, 2018 is finally in the record books. After years of strong gains, the market cooled thanks to trade tensions, rising interest rates, and slowing corporate earnings growth.
The major indexes are well off their record highs set just a few months ago, and a lot of investors pulled money out of the market during the last month of the year that will need to be put back to work in the new year.
With rising interest rates being a main catalyst for the recent market volatility one of the best ways to protect the money you put back to work in early 2019 is by seeking out high quality dividend stocks, since they will be partially shielded from additional interest rate related market volatility.
Higher yielded fixed income assets will definitely attract some money from the stock market, but investors will continue to keep money invested in stocks with solid dividend programs, and in particular those stocks which have an established track record of boosting their distributions each year.
If you find yourself in the position of sitting on some cash you need to invest in the new year, consider these dividend stocks that will boost their distributions during the first two months of the year.
Consolidated Edison (ED)
Consolidated Edison (ED) is an electric utility company. As is the case with most utilities, ED has a strong dividend program with a 3.74% yield. The company has a long history of dividend increases, having boosted its quarterly distributions each of the last 43 years. The stock took a big hit during the latter part of December in sympathy to the overall market but appears to have found support and should trade higher in the early part of the new year as long as the overall market does not resume its downward trend. The company most recently reported earnings at the start of November and posted better than expected numbers that sent the stock to a 52-week high before selling off with the overall market.
The company historically announces its dividend increases mid-January with the stock trading ex-dividend mid-February. The company does not make huge increases but given the current yield a big increase is not necessary to keep investors happy. Look for the company to boost its quarterly distribution from $0.715 per share to around $0.74 for a 3.5% increase. ED is currently trading at $76.29 with an average price target of $80.56.
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L3 Technologies (LLL)
L3 Technologies (LLL) is an aerospace and defense contractor that has a 14-year streak of dividend increases. LLL has been in a strong downward trend over the last two months, but the stock appears to have hit a bottom and has started to move higher with the overall market over the last week. The stock will continue to trade in sympathy to the overall market, but with shares currently trading at just just 12.7 times earnings the downside is likely limited, and analysts see a lot of upside in the stock with an average price target of $243.70 versus a current price of just $171.10.
The company has historically announced its dividend increases during the second week of February with the stock trading ex-dividend during the last week of the month. The company has been lifting its dividend by $0.05 per share in recent years, and a similar increase this year would lift the quarterly distribution from $0.80 to $0.85 for an increase of 6.25%. The stock currently trades at $171.10 with an average price target of $243.70.
Archer-Daniels-Midland (ADM)
Archer-Daniels-Midland (ADM) boasts a 42-year streak of dividend increases, and the stock is currently yielding 3.29%. ADM hit a 52-week high in October but sold off sharply in the fourth quarter despite a better than expected quarterly report mid-November. The stock's recent losses have pulled down its valuation to a very attractive 11 times forward earnings, which suggests the selling has been overdone and the stock could enjoy a strong rally if the overall market is able to maintain strength in the new year.
Given the lengthy history of increases and a low 39% payout ratio there is no reason to expect the company will not extend its streak of increases when it announces its next dividend. ADM usually announces its dividend increases during the second week of February, with the stock trading ex-dividend about a week following the announcement. Look for the quarterly dividend to rise from $0.335 to around $0.35 for an increase of 4.7%. ADM is currently trading at $40.63, and the nine analysts that cover the stock have an average price target of $52.86.
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Foot Locker (FL)
Athletic footwear and accessories retailer Foot Locker (FL) held up well during the market sell off thanks to a very strong quarterly report in late November. The company topped estimates on both the top and bottom line, driving the stock higher in anticipation of a solid holiday shopping season. Foot Locker has a modest seven-year streak of dividend increases, and the stock currently offers a 2.61% yield. FL has a very low 30.9% payout ratio so the company can easily afford to extend its streak of increases when it announces its next distribution mid-February.
Last year the company boosted its distribution by 11% and given the stock's low payout ratio I would expect a similar increase this year. Look for the quarterly distribution to rise from $0.345 to around $0.38 for an increase of 10.1%. The stock will trade ex-dividend mid-April. Foot Locker stock is priced at $52.83 and analysts have an average price target of $58.39.
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Wal-Mart (WMT)
Mega retailer Wal-Mart (WMT) ended 2018 on a positive note after the stock took a big hit during the latter part of November and first half of December. Early indications are for a positive holiday shopping season. In mid-November Wal-Mart posted mixed quarterly numbers, with earnings topping estimates and sales falling a bit shy of estimates. The mixed report hurt the stock, but shares have started to recover in reaction to expectations for a strong set of holiday numbers for the retailer. Wal-Mart is a dividend aristocrat with a 43-year streak of increases that it will extend mid-February when it announces its next set of dividends.
Wal-Mart is unique from most companies in that it announces its full set of distributions for the year all at the same time, which occurs in February. The stock currently yields 2.2%, and investors should not expect a huge increase. Look for the quarterly distribution to rise from 52 cents a share to 53 cents. The stock will trade ex-dividend early March. WMT is trading at $92.70, and the 22 analysts that cover the stock have an average price target of $107.48.
