One of the only things better than getting paid a decent dividend for for taking the risks associated with investing is seeing that dividend increasing. A regularly rising dividend is a signal from a company's management that it believes that over time, it can continue to share the fruit of its labors with its investors, while still continuing to pay its employees, suppliers, and creditors. Because dividends are never guaranteed payments, companies that can repeatedly boost their payouts are truly special businesses indeed.
With that in mind, three Motley Fool contributors went searching for stocks with decent histories of dividend increases that look capable of continuing to do so in 2024. They picked Altria (MO -0.37%), Raytheon Technologies (RTX -0.29%), and Enbridge (ENB -1.21%). Read on to find out why, and decide for yourself whether any of them may deserve a spot in your income-focused portfolio.
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This payout's not going up in smoke
Eric Volkman (Altria Group): There are no sure bets on the stock market for income investors, but the smart money is always on cigarette maker Altria. The company is one of the very few Dividend Kings, i.e. it's an S&P 500 component that has raised its payout at least once per year for a minimum of 50 years in a row.
Despite the aggressive, and largely successful, top-down pushes to limit cigarette smoking throughout the world, many people still love to light up. While Altria and its peers aren't the monoliths they once were, they still have solid user bases. After all, cigarettes are a habit and users are reluctant to change that habit much, if at all. Brand loyalty is high in the cigarette business. In fact, it's unequaled in most other industries.
That alone is a powerful advantage. For cigarette makers, it's compounded by the fact that their product, in the "classic" form, is cheap to produce. It also requires basically no innovation; there's little if any demand for a better, smoother cigarette. Those habitual users like consistency.
All this makes for an extremely profitable business that generates towering piles of cash, even with cigarette consumption at an all-time low in Altria's home market of the United States. The company's free cash flow, the source of that ever-growing dividend, has been holding steady at slightly over the $8 billion mark for several years now. That's more than enough to fund a year's worth of dividend payouts, a line item that came in at $6.6 billion.
It also provides plenty of room for future increases in the distribution; this company will surely remain a King, as its dividend remains a major draw for shareholders. And it'll be a generous monarch, at that: Altria's current payout yields a very substantial 9%-plus.
Cheaper than it looks, safer than it seems
Jason Hall (RTX): The defense industry isn't popular with many investors. It's not a high-growth sector and is both viewed as boring and distasteful, making it unappealing for the majority of those looking to pick their own stocks. And while I'm not one to judge anyone who won't invest in defense companies for personal reasons, I will say that those who eschew the sector because they think it's not a great place for returns are missing out. The iShares US Aerospace & Defense ETF, for instance, has total returns of 485% since inception, about 90% better returns than the S&P 500 over that stretch.
RTX has been one of its rare laggards. The company is currently dealing with some serious issues at its Pratt & Whitney aircraft engines unit that will likely cost billions to address, and over the past decade, it has trailed some of its biggest competitors in landing big defense contracts.
This has hit RTX's stock probably harder than the underlying implications merit. Not great if you own shares, but an opportunity if you're a buyer. At recent prices, RTX shares trade for 26 times trailing cash flow, and probably a higher multiple for next year's free cash. But looking longer-term, RTX is expected to earn $7.5 billion in free cash by 2025; shares trade for less than 16 times that number.
That's very appealing, even before factoring in its dividend, yielding close to 3%, and set for another annual increase this coming spring. Did we mention the board is also aggressively buying back shares at these prices, too?
A fairly boring business that has already promised a higher payout for 2024
Chuck Saletta (Enbridge): Canada-based Enbridge has already communicated its plan to boost its dividend in 2024. Its first dividend payment of 2024 will be $0.915 Canadian per common share, which is a 3.1% increase over its previous payment.
That increase represents the 29th year in a row that Enbridge has boosted its dividend in its home currency terms, which is an excellent track record for any company. It's especially noteworthy for Enbridge because of the type of business it's in: energy pipelines.
In the current era, many people are concerned that oil and natural gas -- the two fuels that Enbridge moves the most of through its pipelines -- are at long-term risk because of climate and pollution concerns. Whatever the very-long-term future may bring on that front, Enbridge's ability to promise its investors a higher payout in 2024 shows that it expects near-term demand to remain strong.
And on that front, it's not alone. The US Energy Information Administration (EIA) publishes an annual outlook on energy usage. In its 2023 report, it expects oil and natural gas demand to remain fairly steady through at least 2050. While the EIA does predict an increase in renewable sources of energy, its expectations are that those sources will likely replace coal and cover net increases in energy demand over that time period.
At a recent yield around 7.7% after that increase, investors who buy today could potentially see a path to getting paid back every penny via dividends over the course of the next 13 years or so. That'd still put us well before 2050, which means those same investors would likely still own an income generating asset with decent prospects for future demand.
Note that US-based investors who own Enbridge in an ordinary investing account will face a withholding tax on their dividends. That withholding tax does not apply to those investors who own Enbridge's shares inside an IRA type account.
Moving energy around may not be the most exciting business on the planet, but it's one that looks likely to be with us for many decades to come. That should provide Enbridge ample opportunity to continue to return value to its shareholders through its dividend.
Get started now
As awesome as it can be to own companies that boost their dividends over time, only people who buy and hold their shares for years on end will see the long-term financial benefits that can accrue from this type of investing. The thing about time periods that are measured in years, though, is that the sooner you get started, the sooner you will reach that milestone.
So make today the day you decide whether one or more of these businesses look like the type you are willing to attempt to collect a dividend from for many years to come. If you do, you just might find yourself one day pleasantly surprised by just how much those seemingly small payments ultimately added up to become.
