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3 Dividend Stocks That Recently Hiked Their Payouts

By David Jagielski - May 2, 2020 at 6:31AM

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Some companies are still increasing their dividend payments during the pandemic.

Many dividend stocks have either cut or stopped their payouts entirely as a result of the coronavirus pandemic. Hardly any businesses are actually increasing them -- after all, raising dividend payments is a big move to make at a time when no one really knows what's in store for the economy and many companies are throwing out their forecasts for the year. However, the management teams at the following three companies remain confident about the future -- including dividend payments.

1. Johnson & Johnson

Johnson & Johnson (JNJ -0.77%) is a Dividend King, and it would take a lot for to interrupt its impressive streak of dividend increases. On April 14, the company announced it would be increasing its dividend payments for a 58th straight year. What may be more surprising is that this wasn't just a modest 1% hike to keep the streak going -- J&J raised its payouts by 6.3%, from $0.95 to $1.01. Dividend investors are now earning an annual yield of 2.7%, above the typical 2% that they would normally expect from an average S&P 500 stock.

The healthcare giant also released its first-quarter results on April 14. Sales were up 3.3% from the prior-year quarter, and adjusted per-share earnings rose by 9.5%. In particular, its consumer health segment saw sales growth of 9.2%, while pharmaceutical revenue rose by 8.7%. Medical device sales were down 8.2%, but the decline was not enough to wipe out the gains in the company's other segments.

Medical products in a pharmacy.

Image source: Getty Images.

However, despite the encouraging results, J&J adjusted down its outlook for fiscal 2020; management is now expecting reported sales to be down between 2% and 5.5% from the previous year. In January, the healthcare giant was projecting sales growth between 4% and 5%.

J&J's stock has proven stable thus far, up about 1% since the beginning of the year. That's a good return given that the S&P 500 is down more than 12% in 2020.

2. Costco

Costco Wholesale (COST 0.52%) isn't known for being a top dividend stock. With a yield of less than 1%, the dividend is a nice bonus for investors, but it's probably not going to be the reason most people decide to buy shares of the company. But it's been increasing its dividend payments since 2005, and on April 15 the wholesaler announced its quarterly dividend payments would rise 7.7%, from $0.65 to $0.70. With the new dividend, investors are now earning about 0.9% annually.

Like Johnson & Johnson, Costco's been soundly outperforming the S&P 500 this year, as it's up almost 3% year to date. The company's stores have been a go-to for consumers looking to load up on day-to-day essentials, and that's why it's one of the better stocks to buy during the coronavirus pandemic.

For the five-week period ending April 5, Costco says its sales were up 11.7% from the same period last year. It could be the start of a bigger trend for the company this year and could make Costco one of the better stocks to buy in 2020, as there's still no end in sight to COVID-19.

3. Kinder Morgan

Kinder Morgan (KMI -2.36%) is one stock investors may not have been expecting to see a dividend increase from. The energy infrastructure company is in the very volatile oil and gas industry, where many businesses are struggling to keep their heads above water amid crashing oil prices. That's why management's April 22 announcement of a 5% increase to its dividend likely raised a few eyebrows. That said, 5% is a much smaller increase than the company was projecting in the past.

In 2017, Kinder Morgan projected annual dividend increases of 25% through 2020. And while it did deliver on that promise in 2019, upping the payment from $0.20 to $0.25, it scaled back on that this year.

"While we have the financial wherewithal to pay our previously planned dividend increase, with significant coverage, in unprecedented times such as these, the wise choice is to preserve flexibility and balance sheet capacity," executive chairman Richard D. Kinder said. "Consequently, we are not increasing the dividend to the $1.25 annualized that we projected, under far different circumstances, in July of 2017." With the increase in the dividend, investors are now earning $0.2625 every quarter, which yields 6.8% annually.

While the company is showing confidence in its future, it may be difficult for investors to do the same. In Kinder Morgan's first-quarter results, the company reported a net loss of $306 million. In the prior-year period, the company posted a profit of $556 million -- in fact, it was in the black for six straight quarters heading into the first quarter. With oil prices still struggling, there could be more losses on the way this year for Kinder Morgan. Its shares are down more than 30% so far this year.

Which is the best dividend stock to buy today?

Although it pays the highest dividend yield, Kinder Morgan is by far the riskiest stock on this list and least likely to survive the pandemic unscathed.

Johnson & Johnson is the best option for dividend investors who just want to put a top stock in their portfolios and forget about it. While the stock does carry some risk from the lawsuits the company is facing (involving its involvement in the opioid crisis, its talc baby powder products, and more), that hasn't been enough to derail the company's strong financial performance. Johnson & Johnson has recorded a profit in nine straight quarters, and its free cash flow in 2019 totaled $19.9 billion.

However, for investors who want to avoid that risk altogether and who are looking for growth as well as dividend income, Costco may be the better overall choice. With strong numbers in March, this year could be a strong year for the big-box chain, making it an attractive buy today.

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Stocks Mentioned

Johnson & Johnson Stock Quote
Johnson & Johnson
$178.14 (-0.77%) $-1.38
Costco Wholesale Corporation Stock Quote
Costco Wholesale Corporation
$488.26 (0.52%) $2.50
Kinder Morgan, Inc. Stock Quote
Kinder Morgan, Inc.
$16.58 (-2.36%) $0.40

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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