If you’re worried about the economy right now, know you’re not alone. Persistent inflation and the loss of high-profile jobs add up to risks, both in terms of making money and being able to control spending. In such an environment, it takes a special kind of company to be so confident about the future that it’s willing to increase the amount it voluntarily returns to its shareholders each year.
For investors, who are feeling the pressure from everywhere, however, this increased payment seems like a much-needed breath of fresh air. Last but not least, the extra cash can certainly help cover some of those increased bills. With that in mind, three Fool.com employees searched for companies that were increasing their dividends even in this economic climate. They came back with me MasterCard (MA 1.67%), Countryn Hospitality Properties (RHP 0.15%)And original parts (GPC 0.51%). Read on to find out why, and decide for yourself if any of these dividend growth stocks deserve a place in your portfolio.
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The fintech master
Eric Volkman (Mastercard): My booster of choice is one company that keeps roaring forward no matter how worried investors are about the economy — Mastercard. At this point, the robust payment card giant needs only a brief introduction, suffice it to say that it is one of the big three card companies alongside it Visas And American Express.
Like Visa, Mastercard is a so-called open-loop operator. It acts only as a processor of the transactions made over its network – it’s not the issuer behind its credit cards (unlike American Express, which, as a closed-loop operator, is the creditor behind its plastic). The wonderful advantage is that there is no credit risk at all, but falls on the issuers of the loan, which are mainly banks.
No credit risk equals big profits, and Mastercard’s margins have been consistently high for decades. That, combined with a still-frothing U.S. economy — and a global one that’s not as bad as many seem to believe — is keeping its powerful engine running. As is the protracted war on cash that everyone knows is being won by fintechs specializing in modern payment methods like Mastercard.
For full-year 2022, to cite just the most recent annual example, the fintech mainstay managed to grow its revenue by a robust 18% (to $22.2 billion) from 2021. Better still, non-GA` (adjusted) net income rose a whopping 24% to $10.3 billion. That’s a net margin of nearly 50%, a level almost unheard of for long-established companies of this magnitude and size.
While Mastercard doesn’t have the most attractive dividend in terms of yield, it makes up for it with regular increases. In fact, the company’s payout is up over 5,300% since announcing its first payout. Who wouldn’t want to jump into long-term growth like this?
Mastercard announced its latest dividend increase in time for the holidays last December. That payout is $0.57 per share, which is a whopping 16% higher than its predecessor.
Business is back, and this REIT is boosting the payout
Jason Hall (Ryman Hospitality Properties): If you just look at the charts over the past few years, Ryman Hospitality seems like a stock to avoid. After all, it cut its dividend in 2020, and even after the recent reintroduction, the payout still appears to be a lot lower than it was before the cut. Combine that with the stock’s strong recent gain — up 15% so far this year alone — and concerns about a possible recession for a company that owns hotels and conference centers, and it’s easy to think this is a stock to avoid .
I think that’s a mistake, especially for investors focused on dividend growth. Ryman’s business hasn’t fully recovered, but Ryman is actually more efficient and profitable today than it has ever been. 2022 was a record revenue year for Ryman, while it also reported record operating income of $327 million and a best-ever operating margin of 18%. This happened at under 70% utilization; Ryman has evolved into a lean, so-so operator that has significant room to continue growing revenue and profits as the conventions and events industry continues to recover. And I expect that hybrid and remote work will lead to companies conducting more off-site meetings to connect employees and customers.
Eventually, Ryman has plans to return more of those profits to investors. It’ll be paying at least $3 in dividends per share in 2023, and I expect it’ll keep increasing the payout for many years to come.
A solid business even in less solid times
Chuck Saletta (original parts): Just two weeks ago, I was predicting that Genuine Parts could very well extend its streak of rising dividends to a staggering 67 straight years. In fact, two days later, it rewarded shareholders with a very solid 6% dividend increase to $0.95 per share per quarter. It has kept this streak of increased dividend payments alive despite the very high level of uncertainty we all face in today’s economy.
Crucial to sustainable success is the fact that Genuine Parts’ core business is the sale of car parts. Cars are very expensive mechanical devices that wear out over time. The older they get, the more likely they are to need repairs and related parts. In a healthy economy, where people have confidence in their future, they will be more likely to replace cars when they reach the point where they need frequent repairs.
In a rough economy, however, it’s harder to justify the high cost of a new car (and the likely payments that come with it). That generally means older cars on the road and therefore a genuine parts store. That reality gives Genuine Parts a decent buffer against bad times, which is one of the main reasons the company has been able to increase its dividend every year for nearly seven decades.
Now that Genuine Parts has officially made it to 67 straight years of dividend increases, the big question is whether it can make it 68+. On that front, the company projects 2023 earnings of between $8.80 and $8.95 per share. At that rate, the dividend of $0.95 per share per quarter will be less than half of expected earnings for the year. While that’s no guarantee of future growth, if the company delivers on those expectations, there’s reason to believe the trend can continue.
If you own the right businesses at the right time, you can be rewarded
Mastercard, Ryman Hospitality Properties and Genuine Parts are all in completely different businesses. What they all have in common, however, is the willingness to reward their shareholders with hard cash for the financial risks they take by investing in their shares. That they’re still growing their dividends today means they’re at least worth a look.
However, if you want to receive these payments, you must be a shareholder before a paying company goes ex-dividend. So make today the day you start your search and improve your chances of being paid more for owning solid companies that are willing to share the fruits of their successes with their shareholders.
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