OMF - February's 5 Dividend Growth Stocks With 5.43%+ Yields

Summary

• The market has started off 2023 with a strong run across most of the major indexes.
• With an uncertain future, dividend growth stocks can be one place to consider investing in to generate returns.
• We have two new names to touch on this month as they've popped up in the screening.

Written by Nick Ackerman. This article was originally published to members of Cash Builder Opportunities on February 3rd, 2023.

Dividend growth stocks aren't always the most exciting investments out there. They often aren't grabbing the headlines; they aren't the stocks running up hundreds of percentages in a year. In fact, they are often some of the least exciting stocks. And that is precisely their strongest selling point. With such a vast world of dividend growth stocks available out there, it is important to screen through to see if there are any worthwhile investments to explore.

They are stocks that provide growing wealth over time to income investors. Dividend growers are often larger (not always), more financially stable companies that can pay out reliable cash flows to investors. Some are slower growers than others. Some are going to be cyclical that require a strong economy. Some are going to be secular, which doesn't generally rely on a more robust economy.

Dividend growth can promote share price appreciation. Of course, that is if these companies are growing their earnings to support such dividend growth in the first place. Trust me. There are yield-traps out there - I've owned a few that I'm not particularly proud of.

I like to think of investing in dividend stocks as a perpetual loan of sorts. Essentially, every dividend is a repayment of your original capital. Eventually, holding long enough, you have the position "paid off." It is all return back into your pocket from that point forward.

The big story had been inflation and the impact of higher interest rates from the Fed raising aggressively.

This continues to come down from the peaks that we saw. In turn, the Fed has slowed down its pace of increases. The latest 25 basis points might be one of the last increases we get. Although with a hotter-than-expected PPI number, good jobs data and retail sales, there are some more hawkish-sounding Fed members. Regardless, we are probably near the end of interest rate increases rather than the beginning.

That helped to push the broader markets significantly higher in the first month of trading. However, it isn't all clear sailing now. The reason rates are expected to quit rising is due to economic slowdown fears. If we end up in a recession, investing in dividend growth names that have safety and a history of growing can be an important area worth investing in.

All of this being said, it is important to understand my approach to dividend stocks and why screening dividend stocks can be important for income investors. These are February's 5 dividend growth stocks that might be worthwhile for a deeper exploration. As with any initial screening, this is just an initial dive - more due diligence would be necessary before pulling the trigger.

The Parameters For Screening

I'll be using some handy features that Seeking Alpha provides right here on their website for this screen. In particular, I will be screening utilizing their quant grades in dividend safety, dividend growth and dividend consistency.

Dividend Safety is relatively self-explanatory. These will be stocks that SA quants show reasonable safety compared to the rest of their various sectors. The grade considers many different factors but earnings payout ratios, debt and free cash flow are amongst these. This category will be stocks with A+ to B- ratings.

For the dividend growth category, we have factors such as the CAGR of various periods relative to other stocks in the same sector. Additionally, the quants also look at earnings, revenue and EBITDA growth. As we will see, this doesn't mean that every stock with a higher grade has the growth we are looking for. This just factors in that the dividend has grown or earnings are growing to support dividend growth possibly. For these, the grades will also be A+ through B- grades.

Finally, for dividend consistency, we want stocks that will be paying reliable dividends for us for a very long time. In particular, hopefully, they are raising yearly, though that isn't an explicit requirement. We will also include stocks with a general uptrend in dividend payments, which means there could have been periods where they paused increases for a year or two.

After looking at those factors alone, we are left with 357 stocks at this time-from January's 561 listings. This was one of the biggest drops from month to month in names meeting the criteria since starting this screening-style article.

I'll link the screen here , though it is a dynamic list that constantly updates regularly. When viewing this article, there could be more or less when going to the link.

From there, I wanted to narrow down the list a lot more. I then sorted the list by forward dividend yield, highest to lowest. Since these will be safer dividend stocks in the first place, screening for those among the higher payers shouldn't hurt.

I will share the top 25 that showed up as of 02/03/2023.

We recently covered Innovative Industrial Properties ( IIPR ), The Western Union ( WU ), Healthcare Services Group ( HCSG ) and Broadstone Net Lease ( BNL ). So I won't be looking at these names today as it's been so recent. I wait for at least one quarter to pass.

I'm going to skip Spirit Realty Capital ( SRC ). It could be a name worth considering, but not exactly what I'm looking for.

Names that we are going to touch on today that made the top five this month include; OneMain Holdings, Inc. ( OMF ), BCE Inc. ( BCE ), Medifast, Inc. ( MED ), ONEOK, Inc. ( OKE ), and Canadian Imperial Bank of Commerce ( CM ).

OneMain Holdings 8.62% Yield

OMF continues to be a name that regularly shows up. I don't cover a name as a top five unless a quarter has passed. In this case, OMF has shown up in each of the two prior quarters it was "eligible." This name has delivered solid dividends to investors, and when times were good, investors received substantial specials.

Since the original publication, OMF has raised its dividend by 5.3% to $1 per quarter. Clearly a sign they are confident.

They are a consumer finance company that provides personal loans. These personal loans can be used for anything. They mention "debt consolidation to home improvements to vacations." Given that these are the types of loans that can struggle when the economy does poorly, it isn't too surprising the direction of the share price.

That's ultimately what has pushed the yield up to be present on this list in the first place. Though even this name has been recovering quite briskly this year, with a strong rebound.

They currently sport a quarterly dividend of $0.95 or $3.80 annually. Earnings are expected to drop nearly 33% for 2022 and another 6% heading into 2023. That means that the payout ratio comes to only around 56% going forward, certainly not a level I'd consider risky. That can make it an interesting choice for investors to consider, but watch where the economy goes.

BCE 6.35% Yield

BCE is another name that has come up on this list several times. As a Canadian telecom company, it's much like U.S.-based telecom companies offering compelling yields generally considered stable. Of course, we saw with AT&T ( T ), they aren't immune to cuts. T's dividend now looks much safer, but that's beside the point. BCE, as a Canadian company, can make it seem like their dividend is irregular.

This would be due to currency fluctuations between USD and CAD. The latest dividend was CAD $0.9675. A significant lift from the $0.92 previously, and they are due for another raise.

Much like their U.S. telecommunication counterparts, earnings growth is slow but generally steady. This makes it an income investment and one that can continue growing its payout to shareholders. It is worth considering if you are looking for a strong, defensive type of position in your portfolio. On the other hand, it is looking fairly priced if the historical P/E range is any consideration.

Medifast 5.66% Yield

MED is a new name to the list that we haven't covered previously. They are a business focused on weight loss and weight management programs. That includes producing food and drink that can aid in that focus with the inclusion of coaches.

The results of the services, like any other weight loss platform, probably vary considerably. However, the dividend here isn't varying and heading with a strong trend higher. They've been around for quite a while, but their dividend history is shorter. That can make it a bit more uncertain than some of the other names we've covered.

Additionally, historically the stock hasn't been a bastion of stability. It has been a more recent development that they've started running higher. Although even more recently, shares have been sliding incredibly swiftly.

With an annual dividend of $6.56, the payout ratio comes out to around 50%. Again, not something that would be really considered in the danger zone. Earnings are expected to rise a touch next year. However, this isn't a company that is covered extensively by analysts because it's actually a small-cap stock. The market cap only comes in at around $1.26 billion. That's thanks to a rapidly rising share price in the last five years. In fact, there is only one analyst covering this name and providing their estimate.

This is an interesting company with a potentially promising future. A name that some investors could choose to look at much deeper. If they are able to achieve these essentially flat earnings, they certainly look attractively valued at around a 9x P/E.

ONEOK 5.56% Yield

OKE is another name that we've run across several times in the past when doing these screenings. This is for a good reason, as they've been able to deliver solid and, once again, growing dividends to shareholders.

As a diversified energy company with business in gathering, storing, processing and transporting natural gas and NGLs, they experienced some uncertainty during COVID. Midstream companies are generally more stable, but that still saw them freeze their dividend from 2020 to 2022. To kick off 2023, though, they've once again bumped up their distribution to investors.

Their last earnings showed a 10% increase in net income, which bumped up diluted EPS. Adjusted EBITDA had also increased by 4% year-over-year. So an increase seems appropriate as things appear to be going well for this company.

For a period of time, they were a name that bumped up their distributions quarterly even.

In terms of valuation, OKE trades below its average EV/EBITDA. Although it has been narrowing lately as shares rise with the broader market off the October low. With interest rates rising, perhaps some depressed valuation might be appropriate. It could at least tell us that shares aren't excessively overvalued relative to history.

Analysts are expecting earnings growth to continue growing over time. That also means we could anticipate further dividend increases in the future. Natural gas and NGL demand only seem to be growing, so they are well-positioned to take advantage of that growing demand.

Canadian Imperial Bank of Commerce 5.43% Yield

As the name would suggest, we are looking at another Canadian company making the top five discussion list this month. Similar to BCE, they pay in CAD, so that can make it look like their dividend is irregular.

However, similar to BCE, that really hasn't been the case. They've been able to deliver a solid and trending higher dividend for years. That even includes maintaining their dividend in the GFC and COVID. A fairly remarkable achievement for a bank with operations in Canada, the U.S. and around the globe.

It might not be the fastest growth, but they carry a fairly high yield already. Slower growth in the dividend can be compensated with a higher upfront yield if an investor buys today. Of course, that came mostly from the shares sliding more recently rather than the dividend boosts alone.

They also went through a 2-for-1 stock split in 2022. Stock splits don't change the fundamentals of a company, but they are generally seen as a positive event. Despite that, shares have still fallen in the last year quite substantially. It wasn't able to offset the general weakness we've seen in the overall market.

Earnings for a financial institution can be quite cyclical. That isn't anything new. A potential global recession or weakness in the U.S. economy could see further weakness from CM. However, some of this looks to be clearly priced in. Additionally, if it is any gauge, historically, we are seeing the stock trade meaningfully below its fair value range.

Putting all this together and CM is another name that seems like a strong consideration for investors.

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