The recent downturn in U.S. stocks has coincided with a flight to safety and lower Treasury yields. This has at least temporarily derailed the path of higher interest rates that many income investors had built into their portfolio strategy.
In turn, certain higher-yielding equities are looking attractive again. So too are companies that have a track record of raising their dividend payouts. They provide a rising income stream that corporate bonds may not, given the latest pandemic uncertainty.
A great place to find companies that have increased dividend profiles with a healthy splash of growth is the Nasdaq U.S. Small-Mid Cap Rising Dividend Achievers index. It is a collection of small-mid caps that have raised their dividends in the last three and five years—and have the financials to support future dividend increases.
Within the 100-stock group is a mix of industry representation but a skew towards fundamentally sound businesses in the financial, industrial, and consumer spaces. These three are among the best of the bunch:
What Will Drive Dividend Growth at Casey’s General Stores?
Casey’s General Stores (NASDAQ:CASY) has a 0.7% dividend yield that doesn’t seem appealing at first glance but there’s a bigger picture here. The convenience store operator has a 16% payout ratio meaning a mere 16% of its profits are returned to shareholders as dividends. This is good news because the runway for future dividend increases is long.
Based on the momentum in Casey’s business, the financial outlook is bright. Profitability rose for the third straight year in fiscal 2021 and is forecast to do the same in the next two years. Its 2,380-store footprint is expected to expand by a few hundred as it continues to scoop up strong convenience store brands across the country. Another major growth driver is the company’s investments in its mobile app and website which will continue to drive strong online orders of fresh foods and staples.
Then there is of course Casey’s all-important fuel business which accounted for more than 60% of sales last quarter thanks to increased highway traffic and gas prices. This combined with the growing prepared food and general merchandise segments has the convenience store in a well-balanced position to grow earnings and dividends for several quarters to come.
Is the Landstar Stock Pullback a Buy Opportunity?
Transportation and logistics provider Landstar System (NASDAQ:LSTR) also has a long road ahead when it comes to dividend hikes. Although the company has raised its dividend for seven years straight, its payout ratio is a low 10%. This means the $1.00 annual dividend is likely to get much bigger over time. Last quarter’s 19% dividend boost showed that management isn’t averse to large dividend increases.
The biggest growth dependency for Landstar’s transportation-heavy business model is healthy domestic economic activity. U.S. freight market conditions have improved substantially since the start of the pandemic and while current concerns threaten to derail the progress, over the long haul, Landstar is expected to generate solid cash flows to support its dividend and share repurchase programs. Better yet, near-term pandemic pressures may be somewhat of a boost to the company’s financial performance due to higher truck rates.
The trucker’s share price has gone in reverse since climbing to a fresh record high last month. Any further weakness should be viewed as a buy opportunity for income investors given the rising dividend pattern ahead.
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