Let's face it: The market has been tough for everyone. Experts still expect slow economic growth and no clear indication of rate cuts. With the high inflationary environment, the overall theme has been on defensive strategies. This has raised the attractiveness of income investing through dividend stocks. This makes buying stocks with the highest dividend yields very attractive. However, extremely high-yielding stocks are often unsustainable and may have highly questionable financial conditions foursome companies.
Even though high yields are important, we must remember that company quality is equally important. When looking for dividend companies to invest in, investors can look at the company’s dividend history as a measure of quality. Companies with an outstanding history of dividend growth are likely to continue growing their dividends moving forward. This is why most dividend investors focus on groups of stocks with a history of dividend increases.
In this article, we'll focus on the Dividend Contenders.
What Are Dividend Contenders?
To become a Dividend Contender, a company has to have at least 10-24 consecutive years of dividend growth. Simple right? 10-24 years may look short for others, but these long streaks of annual dividend hikes are a positive sign that these companies may continue to increase them further. Not all companies can pay dividends or even raise them consistently. These companies often lack underlying business growth if the business isn’t designed to generate enough profits and cash flow to provide dividends.
For example, suppose you look at oil stocks or automakers. In that case, you will notice that these stocks have difficulty joining lists of long-running dividend-paying companies that have consistently raised their dividends. These companies are highly cyclical, and their dividends are highly affected when it comes to downturns or even recessions. Since company profits are heavily affected during these downturns, companies whose revenues are closely tied to consumer spending experience a slump in their profits. This is true for most companies during the COVID-19 pandemic, where companies froze or eliminated their dividend policies. However, despite the state of the global economy, even with the slowdown in growth and the impact of COVID-19, many companies continued to pay dividends and even raise them.
The highest-quality dividend growth stocks will continue to increase their dividends and prove their competitive advantages and the strength of their business models. Hence, it is important for any investor who wants to dabble into income investing to look for safe dividends and reliable dividend growth by conducting their due diligence while emphasizing companies with established histories of successfully growing their dividends, even during recessions.
Let's look at some Dividend Contenders that give out high dividend yields.
Arbor Realty Trust (ABR)
Arbor Realty Trust, Inc. is a REIT with that operates through two segments:
- Structured Business
- Agency Business
The company also invests in real estate-related notes and estate-related joint ventures and in certain mortgage-related securities. It focuses on various investment types, which include Bridge Financing, Mezzanine Financing, Preferred Equity Investments, Junior Participation Financing, government-sponsored enterprises (GSE), Single-Family Rental Portfolio Financing, Structured Transactions, and Housing and Urban Development (HUD) Agency Lending, and Private Label. The company also underwrites, originates, and services permanent fixed-rate loans on SFR properties.
Abror has a dividend yield of 12.88% and 5-year dividend growth of 116.90%. Arbour REIT has increased its dividend for 10 consecutive years.
Analyst Rating
Analysts rate ARB as a “Moderate Buy” from 2 Strong Buys, 1 Moderate Buy, and 2 Holds. The mean target is $14.70, and the high target of $17.50 represents a potential upside of 36.6%.
Delek Logistics Partners LP (DKL)
Delek Logistics Partners, LP is a company that owns and operates crude oil, intermediate, and refined products logistics and marketing assets. The company also owns crude oil and natural gas gathering and water processing assets.
The Company operates in segments:
- Gathering and Processing - provides crude oil and natural gas gathering and processing, water disposal and recycling and storage services to Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas, and Big Spring, Texas
- Wholesale Marketing - consists of refined product terminals and pipelines in Texas, Tennessee, Arkansas, and Oklahoma.
- Terminalling, Storage, Transportation - provides crude oil, intermediate, refined products transportation, and storage services to Delek Holdings' refining operations in Tyler, Texas, El Dorado, Arkansas, and Big Spring, Texas.
The company has an impressive dividend yield of 9.41% and a 5-year dividend growth rate of 40.86%. The company has continued to increase its dividends for 10 years.
Analyst Rating
2 Analysts rate DKL as a “Hold." The mean target is $48.00, the same as its high target price, with an upside of 2.2%.
Altria Group (MO)
Altria Group is an international tobacco company with a market capitalization of $80.4 billion.
Founded in 1902 and headquartered in Richmond, Virginia, United States, the company employs over 6,300 people. Its popular brands include Marlboro, Chesterfield, and L&M.
Altria Group primarily sells oral tobacco products and smokeable products. Among its accessories are cigarettes made and sold by Philip Morris USA Inc. and machine-made cigars and pipe tobacco by John Middleton Co. Altria Group Distribution Company, Helix Inventions LLC, Philip Morris Capital Corporation, and Altria Client Services LLC are further add-ons. The business offers deals and distribution services, support services, and various financial tools.
Altria Group has an annual dividend yield of 8.29% and a 5-year dividend growth rate of 44.88%. MO has continuously increased its dividends for 53 straight years.
Analyst Rating
Analysts rate MO as a “Hold” based on 3 Strong Buys, 5 Holds, and 2 Strong Sells. The Mean Target is $46.44 with a high target of $53.00, an upside of 17.59%.
Final Thoughts
Investors looking for stocks with a high chance of increasing dividends each year should consider stocks with the longest histories of dividend growth. A company that raised its dividend for at least ten years has proven its durable competitive advantages. Their steady profitability, even during economic downturns, and a positive future growth outlook provide that reliability that defensive investors seek. This will also allow them to raise their dividends going forward. As a result, high-quality Dividend Contenders have become attractive for long-term dividend growth investors.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
