Dividend stocks that provide investors with regular, recurring payouts are incredibly valuable investments to hang on to for the long haul. Stocks that also increase their payouts are even better. That's because you could be collecting more dividend income just by simply holding on to the stock for the long term.
Three stocks that recently hiked their dividend payments include CareTrust REIT (CTRE 2.07%), Cenovus Energy (CVE 2.97%), and Southern Company (SO 0.39%). Let's take a closer look at their dividend payments today, and whether investors should expect more rate increases from these stocks in the future.
1. CareTrust REIT
CareTrust is a healthcare-focused real estate investment trust (REIT) that pays an impressive yield of 6.6%. The stock has been falling this year amid general softness in the stock market and worries about a possible recession. However, that hasn't stopped the REIT from providing a top dividend. Last year, it was paying its shareholders $0.265 every quarter, and now that dividend payment is up to $0.275, representing an increase of 3.8%. On an annualized basis, that means investors are collecting $1.10 per share in dividend income.
Although REITs have to pay out 90% of their earnings back to investors, they rely on funds from operations (FFO) to evaluate the safety of their dividend payments. And CareTrust's FFO per share was $1.32 last year, which would be sufficient to cover its dividend today, and still leave plenty of room.
REITs like CareTrust that focus on healthcare (its portfolio is made up of skilled nursing facilities, assisted living facilities, and independent living facilities) are safe given the general stability of the healthcare industry. And that can make rent payments more stable and predictable than if you were to invest in a REIT that focuses on residential housing or retail properties.
With a high yield and room for more increases in the future, CareTrust could be an underrated dividend stock to buy today.
2. Cenovus Energy
Oil and natural gas producer Cenovus Energy recently reported a strong quarter due to high commodity prices. With oil prices at levels not seen in years, the stock has been a hot buy in 2022, soaring 53% year to date and dwarfing the S&P 500, which is down 12% over the same period.
The company's net earnings for the period ended March 31 totaled 1.6 billion Canadian dollars, for a year-over-year increase of 639%. It also reported free funds flow of CA$1.8 billion that was more than triple the prior-year period's tally of CA$594 million. Cenovus is confident that even if oil prices should fall, it can continue to perform well.
Notably, the company has tripled its annual dividend (which is paid quarterly) from CA$0.14 to CA$0.42. Cenovus believes the payout can be sustainable even if the price of West Texas Intermediate, a key benchmark for the industry, falls to around $45 per barrel -- and currently, it's more than double that price.
At 1.8%, Cenovus' yield is a bit higher than the S&P 500 average of 1.4%. However, given the uncertainty surrounding oil prices, I wouldn't expect the company to raise its dividend a whole lot higher -- and in the past, Cenovus slashed its dividend payments when oil prices were falling. But if you're bullish on the sector, this can be a great option to gain exposure to it while collecting a good dividend.
3. Southern Company
Southern is a utility company serving nine million customers across the country. For its investors, it has also been regularly increasing its dividend payments for decades. The latest increase, its 21st in a row, is no surprise for shareholders as the company says its long-term contracts allow it to generate predictable earnings numbers and enable it to consistently grow its dividend. The $0.02 hike is just as large as the one it announced last year. At $2.72 in dividends per share over the course of a full year, the stock now yields 3.7%.
The news of the hike came just before Southern announced its latest quarterly results, covering the first three months of 2022. Reported per-share earnings of $0.97 for the period were down $0.10 from a year ago. But on an adjusted basis, they remained nearly identical to the $0.98 that the company reported during the same period last year. Either way, the earnings leave plenty of room for Southern to cover its new quarterly dividend payment of $0.68 with ease.
The stability that this business offers, combined with Southern's track record of consistently raising payouts, makes it a safe bet that payouts will continue to increase for the foreseeable future. And that makes Southern a promising dividend stock for investors to buy and hold for years.