PINE - March's 5 Dividend Growth Stocks With 5.73%+ Yields

2023-03-17 17:54:49 ET

Summary

• After a strong start to the year, February pulled us back down to reality.
• Asset prices have again dropped due to expectations of higher interest rates for longer.
• That being said, we look at names every month that could provide some places to start looking for investment opportunities.
• This month there are no new names, but we can take a fresh look at the latest data from these companies.

Written by Nick Ackerman. A version of this article was published to members of Cash Builder Opportunities on March 3rd, 2023. With particularly volatile markets, always check the latest investing data before making any decisions.

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.

Inflation has continued to trend lower. However, that hasn't been the most important news lately. Instead, the banking sector, due to bank failures, has taken center stage. We are now at a point where despite hotter-than-expected data in February, a violent and swift end to some banks in March may deter the Fed from getting too aggressive here. While inflation remains elevated, the continuing trend lower is encouraging.

Although I'm generally more optimistic and expect that we could see some mild returns in 2023 after a down year. At the same time, I don't necessarily need returns in the short term. Investing in dividend growth stocks over the long run tends to work itself out in the longer term.

All of this being said is important to understand my approach to dividend stocks and why screening dividend stocks can be important for income investors. These are September'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 540 stocks at this time-from January's 561 listings. 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 03/03/2023.

Innovative Industrial Properties ( IIPR ), one of my personal holdings, makes the top of the list. However, we recently touched on that name in January. So for this month, we'll skip over it for now. Worth noting is that they released their earnings during this time, and the results came in beating expectations on both FFO and revenue.

Artisan Partners Asset Management ( APAM ) is also going to get skipped over. They pay a variable rate dividend based on earnings. Absolutely nothing wrong with that, but I want consistent dividend growers on this list.

Additionally, Healthcare Services Group ( HCSG ) recently suspended its dividend. Therefore, for obvious reasons, it'll be excluded from this list. Not that it isn't worth investing in as they work through turning around their business, but not appropriate for what I'm looking for. Here's a remark that I made on this name previously .

That's [consecutive quarterly dividend growth] impressive, but there are clearly some issues. The future of the dividend should be a concern if that's the only reason you hold this one. This would seem more of a higher-risk speculative play at this point. One would also likely have to be quite patient, as a turnaround could take years. At least for now, one would be paid generously while awaiting a turnaround.

So clearly, a suspension in the dividend wasn't overly shocking to me. This a good reminder that a screener is still only an initial surface look. As it stands, the safety rating sat at a B- when it was cut.

Medifast ( MED ) is an interesting name we touched on last month, so we'll give it some more time before reviewing it again.

All this leaves us with, The Western Union Company ( WU ), Enbridge ( ENB ), TC Energy Corp ( TRP ), Alpine Income Property Trust ( PINE ) and Janus Henderson Group ( JHG ). All five of these names are names we've seen come on this screener before, so we'll be giving a look at their latest earnings to see if anything in their situations has changed materially.

The Western Union Company 7.47% Yield

WU is a name we've seen come up consistently on this list. In fact, the last time was in December when we took a new look at it. For the most part, it remains a name that struggles to survive in the current era.

Transferring money is a highly competitive business, most happening within apps these days for no or extremely low costs. WU has its own app, but they were a business developed around the old way of transferring money. They seem to continue to be drowned out by all the new competition. Facing this reality, dividend growth has stalled for the last nine quarters.

What hasn't stalled is the share price of the stock. However, instead of ascending, it's been descending rapidly. To be fair, most share prices have been dropping in the last year, but the pace of the decline for WU has been stronger.

All that being said, analysts expect that after fiscal 2023, they may return to growth once again. If that happens, the non-existent dividend growth, for now, could return again. Looking at the forward payout ratio, it's at 60%. So while the company has seen declining earnings, the dividend doesn't seem to be in danger either.

All that being said, it could be more of a speculative play for some investors. Based on the historical trading range, it would suggest that the stock is trading well below its historical average P/E.

Enbridge 6.82% Yield

ENB is a popular name on Seeking Alpha, with nearly 119k followers. This is for a good reason too. This Canadian company has been able to generate a growing dividend for years. They operate as an energy infrastructure company, with pipelines being its primary focus. However, they also have a utility business and a growing renewables business. That diversification can help keep their earnings more consistent.

For American investors, we have to deal with USD/CAD conversions, so the payout can seem variable when converting to USD.

In fact, more recently, with such a strong USD, the payouts look like they are declining or plateauing. For some investors, this might not be desirable.

They boast that they've paid dividends for over 68 years and recorded a 10% CAGR over the past 28 years for growth. That growth has been much more tepid in recent years but still trending higher.

For ENB, you don't have a K-1 come tax time, which some investors won't or can't invest in. However, tax considerations should also be considered in terms of withholdings for investors outside of Canada.

TC Energy Corp 6.71% Yield

Another Canadian energy company making its way onto the list this month is TRP. The last time we touched on TRP was in December , and they have a lot of similarities to ENB in terms of its dividend. U.S. investors have to contend with the USD/CAD conversion for the dividends, making it appear variable on the surface.

They don't have quite the same length of dividend growth or history as ENB, but they've still provided respectable growth. They are estimating dividend growth of 3-5% going forward . The latest increase was 3.3%, which means it is quite similar to ENB's increases more recently. However, the historical growth has been a bit more tempered.

Given the already higher yields and economic uncertainty, being more modest seems to be an appropriate approach. Similar to ENB, also is no K-1, but tax withholdings can apply .

Alpine Income Property Trust 6.20% Yield

PINE is a name we've covered previously . However, it hasn't been since November 2022, when it last showed on one of these lists . The yield has risen since that time, but it was due to the price dropping and not raising the dividend, as they've kept it the same for the last three quarters. What is a bit interesting is that the price had started to trend higher appreciably during this time before more recently coming back down to earth.

As a real estate investment trust, or REIT, it naturally gets my attention, and although they've only been operating for a short while, it is a more interesting name, in my opinion. They've been able to put up impressive dividend growth in this short period of time, despite the last several quarters holding steady.

Now that the price is coming down once again, it does get my attention even more. This is a reason why these screening articles can be helpful in finding new ideas or old ideas that come back to better valuations.

One concern is that they expect an AFFO of $1.52 to $1.57 in the fiscal year 2023. That's down from the $1.77 in AFFO reported for 2022. With interest rates rapidly rising, the environment has changed, so growth can be limited. Debt costs more, slowing the pace and profitability of taking on more debt. However, a decline is still not something one wants to see in earnings.

This still makes it an interesting name to consider, but clearly, they're going to be challenged in this upcoming year. Perhaps not too surprising, given that this isn't something only impacting PINE. There are plenty of strong companies that are expecting declines in 2023 as interest rates slow things down.

Janus Henderson Group 5.73% Yield

JHG is a name that came up before; the last and first time was in December. This is an asset manager, and with assets down across the board, they are also grappling with expecting lower earnings. For fiscal 2023, analysts anticipate a decline of nearly 19% in EPS. After that, resuming some growth once again in earnings.

The dividend growth from this name has been tepid but not stalled out completely. Asset managers are at the mercy of how equities and fixed-income investments move, so naturally, we've seen the share price come down in the last year, along with most other assets. That's primarily what has pushed the yield higher for this name.

Despite a lower price, that doesn't always mean a cheaper stock. In fact, given their historical trading ranges, it would indicate that JHG is trading above fair value.

We may need to see further declines before considering this name a "good deal." On the other hand, a larger yield here could be putting in a floor, as the lower the price, the higher the yield. The dividend doesn't appear to be at risk, but the EPS payout ratio is going to become quite high in 2023.

There's also something to be said about missing out on the run higher. When it happens, it could be quite sharp, and one could miss these lows. With an anticipated recession later this year, I suspect that might not be the case, but one never can be 100% sure. That's pretty much applicable to all investments in this precarious environment.

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