Dividend stocks often have the reputation of being stodgy and boring compared to more growth-oriented investments in new or high-tech niches. That’s true even though income-paying stocks tend to perform better over the long term. They provide immediate cash, too, that can be used to bulk up your savings or amplify your returns through automatic reinvesting.
And not all dividend payers have modest earnings growth prospects. A few had record years in 2020 and are raising their shareholder payments to reflect that good fortune. Kroger (NYSE:KR), Lowe’s (NYSE:LOW), and Garmin (NASDAQ:GRMN) each have strong prospects for even higher income on the way.
1. Lowe’s: 33% dividend increase
It’s no surprise that shareholders just received a huge income raise from Lowe’s. The home improvement giant added $17 billion to its sales base in 2020 to push revenue to almost $90 billion. Management cut costs, too, so that operating earnings edged closer to Home Depot‘s industry-leading 14.5% of sales. These wins helped convince CEO Marvin Ellison (who used to work as a top executive at Home Depot) to raise the dividend by 33% for 2021.
That higher payout starts hitting shareholders’ accounts in early August, but there’s much more for investors to like about this stock. Sure, Lowe’s trails Home Depot in key areas like market share and profitability. But the company has closed that gap over the last few quarters and can now reasonably target similar world-class operating metrics. And shares are cheaper on a price-to-sales basis, which provides some room for error in case that optimistic scenario doesn’t play out quickly.
2. Kroger: 17% dividend increase
Kroger’s 17% higher dividend starts arriving in shareholders’ portfolios in August. The supermarket giant often gets left out of Wall Street’s buy lists in favor of highly profitable retailers like Target or dividend stalwarts like Walmart. But that might change soon.
Kroger’s first quarterly report of 2021 added weight to management’s claim that it is winning market share against rivals like Walmart. Sales are on pace to rise by 11% over the past two years, marking a solid upgrade to the chain’s pre-pandemic rate. Kroger scored some wins this past year with its in-store brands, its store remodels, and its larger digital fulfillment infrastructure.
It lags Target and Walmart in building out this multi-channel platform but should catch up in the next year or so. That success might bring higher margins, faster sales growth, and gushing cash returns for investors willing to hold on to the stock.
3. Garmin: 10% dividend increase
Garmin’s 10% dividend increase was enough to keep its yield well ahead of other tech producers. The GPS device maker’s stock today yields over 1.5%, or a bit more than you could get from owning a diversified index fund. For context, Apple stock pays less than 1%.
Garmin has brighter prospects than your average S&P 500 company, though. Sales jumped to a sixth straight record last year despite weakness in niches like automotive and aviation. Garmin offset those challenges by capturing rising demand for its wearable tech and booming growth in the marine division.
Profitability took a rare step backwards in recent quarters after having risen for several consecutive years. I’d expect that growth trend to reestablish itself by late 2021 thanks to Garmin’s packed pipeline of product releases ranging from smartwatches to aviation platforms. Looking further out, income investors are likely to see strong returns as Garmin capitalizes on its innovation lead and its growing global footprint.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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