While periods of market declines are painful to endure, they also offer the chance to buy great businesses at reduced prices. For dividend stocks, this benefit is two-fold, as investors not only get lower earnings valuations, but receive higher dividend yields as well.
When looking for great dividend stocks, we prefer to start with those that have demonstrated histories of being willing and able to raise their payouts over long periods of time. One way to do that is to start with the Dividend Achievers, a group of stocks with at least a decade of consecutive dividend increases.
Here, we’ll examine three Dividend Achievers that all have at least 5% current yields.
An Impressive Dividend Streak
Best Buy (BBY) is a technology retailer that operates mostly in the U.S., and with a small presence in Canada. The stores and e-commerce sites offer computers, mobile phones, networking products, tablets, and other consumer electronics products. It also offers gaming products, home appliances, and technical support, among other things.
Best Buy operates more than 1,100 stores across the U.S. and Canada that collectively generate about $46 billion in annual revenue. The company was founded in 1966 and trades today with a market cap of $14.3 billion.
Despite the fact that consumer electronics are inherently cyclical, Best Buy has a strong history of earnings growth. Since the bottom in fiscal 2014, the company has grown earnings for eight consecutive years. Moreover, earnings were about five times that of 2014 levels in fiscal 2022, so growth has been outstanding. This year, we expect a reversion to the mean of sorts, with lower earnings off of last year’s record. Looking forward from this lower base, we see 4% average annual growth in the years to come.
Best Buy’s dividend increase streak is quite impressive at 19 years, putting it at nearly double the required streak for Dividend Achievers. Retail is generally cyclical, but Best Buy has managed to protect and raise its dividend through all parts of the economic cycle.
The dividend has soared in recent years, and this year’s payout is about 400% higher than it was a decade ago. The stock has performed quite poorly in 2022, as the market has continued to sell off, so the combination of a lower share price and higher dividend means the current yield is around 5.4%. We see the payout ratio under 60% for this year, so there is no reason the company’s dividend streak cannot continue indefinitely.
The shares trade very near fair value now, with the price at just under 11 times earnings, where we find fair value. Given this, the big yield, and the 4% projected growth rate, Best Buy is a buy-rated stock today.
Give This One a Whirl
Our next stock is Whirlpool (WHR) , which manufactures and distributes home appliances and related products globally. Primary products include refrigerators, freezers, ice makers, water filters, laundry appliances, cooking appliances, and mixers. It owns many well-known consumer brands including Whirlpool, Maytag, and KitchenAid.
The company was founded in 1911, produces about $21 billion in annual revenue, and trades today with a market cap of just under $8 billion.
Whirlpool has managed to roughly triple earnings in the past ten years, posting year-over-year growth every year with the exception of one during that period. We see flat earnings going forward from this year’s levels, given Whirlpool’s earnings are quite elevated by historical standards, but should be down somewhat from last year’s record.
The dividend has been boosted for 12 consecutive years, and has also roughly tripled in the past decade. That, and a share price that has declined about 40% this year means Whirlpool is yielding more than 5%. That’s a very high yield for any stock, but in particular for Whirlpool, which generally yields more like 2%.
We see the payout ratio around 30% for this year, which means not only is the dividend very manageable, but it has ample room for future growth as well. In conjunction with the high current yield, that makes Whirlpool a great dividend stock choice.
Shares trade for just 6.4 times this year’s projected earnings, well below our conservative estimate of fair value at 9 times earnings. That implies a sizable tailwind to shareholders via a rising valuation, which helps given we expect no earnings growth. With the approximate 5% yield, Whirlpool looks very attractive today.
Press the ‘On’ Switch for Income
Our final stock is Edison International (EIX) , a utility company that generates and distributes electric power. The company has 15 million residential, commercial, industrial, and agricultural customers across most of California. It also has a large network of transmission lines and substations, and is one of the largest utilities in the US.
Edison was founded in 1886, generates about $16 billion in annual revenue, and trades with a market cap of $21 billion.
Edison’s earnings growth history is spotty despite it being a utility, in that earnings per share for this year are expected to be almost exactly the same as they were ten years ago. Edison has struggled with sharply rising operating costs and its ability to raise prices quickly enough to offset that growth in the highly-regulated California utility market.
Even so, its dividend increase streak stands at 18 years, putting it nearly on par with Best Buy on that measure. The dividend has more than doubled in the past decade as well, so Edison is putting forward meaningful increases for shareholders.
The yield today is right at 5%, which is the product of a sharp selloff in utilities in the past couple of months on higher interest rate fears. That has created an opportunity for an above-trend yield for Edison, which has typically traded between 3% and 4% yields in the past.
The payout ratio should be under 65% for this year, which is actually quite low by utility stock standards. We therefore believe the dividend should be safe for many years to come.
The stock is trading right at fair value at 12.6 times this year’s expected earnings, so we see it as reasonably priced today. Given this, the low payout ratio, and the very high yield, Edison is a strong income stock today.
When it comes to dividend longevity, more is better. However, by taking a look at emerging dividend winners, such as the Dividend Achievers, we can spot great dividend stocks before they reach eye-catching levels of dividend longevity.
Best Buy, Whirlpool, and Edison all have respectable dividend increase streaks, great histories of sizable payout increases, and reasonable valuations. What’s more, they all have yields of about 5% or better. That makes them favorable dividend stocks today.
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