Stocks That Will Increase Their Dividends as Interest Rates Fall: DOV, MO, SJM and VZ

Wednesday, July 24, 2019 6:36 AM | Michael Fowlkes

As anticipation grows that the Federal Reserve will soon announce a cut to interest rates, the overall market has hovered near record highs. Rate cuts are great for the market because it encourages income investors to transfer money from fixed income assets into the market in search of higher yields.

Dividend stocks tend to show strength as interest rates fall, and stocks with solid track records of annual dividend increases become even more attractive.

It remains unclear if the Fed will actually cut rates in the second half of the year, but the ongoing trade war between the U.S. and China poses a great enough threat to the global economy that a rate cut is a real likelihood, and investors should be prepared.

Dividend stocks will do well, and these stocks that are about to boost their quarterly distributions are very attractive in the current landscape.

Dover Corp. (DOV)

Dover Corp. (DOV) is a true dividend aristocrat with an impressive 63-year streak of dividend increase. The stock currently offers a 2.0% yield with a $0.48 quarterly distribution. With a low 39.8% payout ratio the company can easily afford to extend its streak of increases when it announces its next dividend payment during the first week of August. While another increase is a near certainty, investors should not be expecting news of a huge increase this year. Last year Dover boosted its quarterly dividend by just a penny, and this year's increase is also likely to be small considering the stock already has a nice 2.0% yield. Look for the company to boost its dividend to around $0.50 and the stock to trade ex-dividend during the final week of August. Dover posted mixed Q2 numbers in mid-July with a positive earnings surprise. DOV shares have traded sideways over the last month after hitting an all-time high at the start of July and the company will not report earnings again until October 17.

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Altria (MO)

Tobacco companies understand the need to pay big dividends to keep investors interested that may otherwise look for alternative investments due to ethical reasons. Altria (MO) is no exception and the stock is currently has a 6.4% yield with a 10-year streak of increases. Despite declining smoking rates Altria has managed to consistently grow profits, with earnings up 10.5% annually the last five years and analysts forecast profits to rise 7.2% per annum over the last five years. The company is also looking at marijuana for the future, having invested $1.8 billion in Canadian marijuana grower Cronos (CRON). With the stocks already high yield investors should not expect to see a huge increase when Altria announces its next dividend in the latter part of August. Last year the company boosted its quarterly distribution by 14%, but a big reason for last year's increase was recent tax changes and in previous years the increases have been much more modest. MO has a high 80% payout ratio which will likely prevent another increase the size of last years. Look for the quarterly dividend to rise from $0.80 to around $0.86 for a 7.5% increase which is more in-line with past increases and the stock to trade ex-dividend mid-September.

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J.M. Smucker (SJM)

Consumer goods maker J.M. Smucker (SJM) has a 17-year streak of dividend increases and the stock currently pays a 3.0% dividend yield. The stock has a 40.3% payout ratio so the company can easily afford to extend its streak of increases when it announces its next dividend. The company has historically announced its increases mid-July so this year's increase could come any day and the stock will trade ex-dividend mid-August. Last year Smucker boosted its dividend by 9% and given the low payout ratio this year's increase will likely be similar. Investors are currently getting an $0.85 quarterly payment which should rise to around $0.93 for an increase of 9.5%. After hitting a 52-week high in May the stock has trended lower, due in part to a mixed fiscal Q4 report in early June with a small revenue miss. News of the next dividend increase could allow the stock to find support and start to make back some of its recent losses.

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Verizon (VZ)

Like most utility stocks, telecom giant Verizon (VZ) offers a big dividend and currently boasts a 4.3% yield with a 12-year streak of increases and a 51.7% payout ratio. The telecom sector is very competitive, and earnings growth is modest. Verizon has grown earnings at an annual rate of 5.5% over the last five years and looking ahead analysts expect profits to rise at just 2.8% per annum over the next five years. The competitive nature of the sector and the modest growth rates are a primary reason why telecom companies offer such high dividend yields, and why Verizon will almost certainly extend its streak of dividend increases when it announces its next distribution at the start of September. Given the already high yield investors should not expect to see a huge increase, with last year's 2.2% increase being around the level to expect again this year. Look for the quarterly payout to rise from $0.603 to $0.615 for a 2% increase and the stock to trade ex-dividend at the start of October.

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