An increase in a quarterly dividend payment is something all income investors love to hear about. That's because it means they're collecting more money from their investments. For example, if a stock were to increase its dividend by 3% each year, it would amount to an increase of over 34% over a 10-year period, thanks to compounding.
That compounding growth is part of what makes dividend-bearing stocks great options for long-term investors. Two stocks that have been raising their payouts for decades are AbbVie (ABBV 1.97%) and ExxonMobil (XOM 1.78%). And both of these companies have real potential to announce their next rate hikes in October. Let's find out a bit more about these two dividend stocks.
NYSE: ABBV
Key Data Points
1. AbbVie
Drugmaker AbbVie pays a high dividend yield of around 4% per year. That's a great payout when you consider the S&P 500 averages a yield of only 1.8%.
What's more, AbbVie is a Dividend King and has raised its payouts annually for 50 consecutive years. In October 2021, the company last announced a rate hike (which would be in effect for the following year). That increase was an 8.5% bump up for the dividend, raising it to $1.41 per share per quarter.
The company's resilient business makes it a top stock to own whether you're a dividend or growth-oriented investor. Through the first six months of this year, AbbVie's sales totaled $28.1 billion and increased 4.3% year over year. Its immunology drugs (Humira, Skyrizi, and Rinvoq) accounted for close to half of that tally, bringing in $13.3 billion all on their own.
AbbVie also has other segments to help diversify its business, including aesthetics, neuroscience, and hematologic oncology. Over the past four quarters, the company's free cash flow has totaled $22.2 billion, leaving plenty of room to cover its dividend payments ($9.7 billion during that time frame), suggesting that more rate hikes are likely to happen.
AbbVie is a solid long-term buy, and its shares are up 4% this year, broadly outperforming the S&P 500, which is down by 23%. News of a dividend increase in October could bolster the stock higher, especially if AbbVie also reports some solid quarterly results. (Last year, it announced both the results and the dividend hike at the same time.)
There's no real incentive to wait until after the announcement as this is a solid dividend stock all around. If you're going to buy AbbVie shares, now is as good a time as any to do so.
NYSE: XOM
Key Data Points
2. ExxonMobil
There have been doubts in recent years as to whether oil and gas giant ExxonMobil would continue increasing its dividend payments. Low oil prices due to the pandemic led to some challenging results for the oil and gas producer, and its payout ratio went haywire:
XOM Payout Ratio data by YCharts.
The company didn't raise its quarterly payments in 2020, but Exxon still paid more in dividends than it did in the previous year ($3.48 per share versus $3.43). In 2021, it waited until the last quarter of the year to raise its payouts, and when it did, it was by $0.01.
This time around, Exxon's business is in much better shape because even though oil prices have been declining in recent months, they're still higher than where they were in recent years. Generating more than $49 billion in free cash flow over the past 12 months, Exxon has brought in far more cash than it has needed to cover its dividend payments (less than $15 billion) during that time frame.
Last year, the company announced an increase to its dividend on Oct. 27, 2021, to keep its status going as a Dividend Aristocrat. It technically doesn't need to raise its dividend right now to keep that streak going. And prior to the pandemic, its dividend hikes came into effect in the second quarter, rather than the fourth quarter. But given the strong year it has been having in 2022, Exxon may announce an increase in October and get back to doing more consistent rate hikes now that oil prices seem to be more stable and the economy is returning to normal.
Exxon's 4.1% yield looks solid right now. With the stock price falling in recent weeks (thanks to a drop in oil prices), now may be an opportune time to buy the stock -- before a possible rate hike and the release of the company's earnings numbers. These should remain strong. (Last year, it released its third-quarter numbers just days after the dividend announcement.)
