Dividend stocks that raise their payouts can often make for great long-term investments. As their payouts rise, investors collect more dividend income. Dividend increases can also give you some important insights into how well a company is doing. If it's a strong and healthy increase, that may be a good sign the business is doing well and anticipating much more growth. If the dividend increase is minor, however, and solely for the sake of extending a dividend growth streak, then that could be a signal that the opposite is true.
Three companies that recently raised their payouts are Johnson & Johnson (NYSE: JNJ), Southern Company (NYSE: SO), and TJX Companies (NYSE: TJX). Let's take a closer look at these stocks, the rate of their increases, what they tell investors, and whether these are good dividend stocks to buy right now.
1. Johnson & Johnson: 4.2% increase
Healthcare giant Johnson & Johnson is a Dividend King, which means it has a notable track record of growing its dividend over the years. Barring some disastrous financial catastrophe, it's highly likely that the company is going to increase its dividend each year.
On April 16, Johnson & Johnson announced it was increasing its dividend for a 62nd consecutive year. The 4.2% increase was a decent bump up to the dividend. But it's lower than the 5.3% increase it announced last year. And the year before that, the company raised its payouts by 6.6%.
This doesn't mean that the rate hikes are going to continue shrinking, but it is a possibility. The company has been pivoting toward growth after spinning off its consumer health business last year, which may result in a greater need for cash in the future as it invests in growth opportunities. Plus, with tens of thousands of talcum lawsuits to resolve, it is facing the prospect of some costly legal battles ahead.
A decade ago, I would have said this is a safe dividend stock to own, but it's hard to make a case for that today. Although it's likely that Johnson & Johnson will still increase its dividend payments, the rate of increase may slow in the years ahead. And there's the outside chance that if the legal bills pile up and its talcum payouts prove to be more than expected, a dividend cut may even take place.
Although its payout ratio looks manageable at 64% of earnings and its 3.4% yield may be sustainable in the short run, Johnson & Johnson isn't the super-safe dividend stock it once was, and investors should tread with caution here.
2. Southern Company: 2.9% increase
Atlanta-based utility Southern Company announced on April 22 that it would be increasing its quarterly dividend by two cents to $0.72. At 2.9%, it's a modest bump up to the payout, but it's also consistent. This increase marks the 23rd consecutive year that Southern has raised its dividend, and typically, the increases have just been modest two-cent hikes.
For dividend investors, utility stocks have good value because they can often provide a lot of long-term stability and predictability. In three of the past four years, Southern has posted a profit between $3 billion and $4 billion. While there can be some earnings volatility for utility companies depending on the weather, these are the types of stocks that can be ideal for risk-averse investors. Southern's stock has a beta value of 0.5, indicating that there isn't a whole lot of volatility with this investment.
In terms of both earnings and dividends, Southern can make for a dependable and predictable income stock to hang onto for the long haul. At 3.9%, it has the highest yield on this list.
3. TJX Companies: 13% increase
When a company announces a double-digit dividend increase, it usually means it has been performing exceptionally well. On April 2, off-price retailer TJX announced it was raising its dividend by a generous rate of 13%. This is the 27th time in the past 28 years that TJX has made an increase to its dividend. Not only is it increasing the dividend, but it's also planning to repurchase at least $2 billion worth of shares for fiscal 2025.
For the company's fiscal 2024, which ended on Feb. 3, TJX reported 9% revenue growth, with sales topping $54.2 billion. And net income of $4.5 billion was up an impressive 28%. The company says its same-store growth rate of 5% was at the high end of its plan as it benefited from an increase in transactions.
Business has been strong for TJX, and the big dividend hike inspires confidence that the company's trajectory will remain positive. Although TJX's yield of 1.6% may appear modest, between its encouraging growth and generous rate increases, this can make for a well-balanced dividend stock to buy and hold right now.
Should you invest $1,000 in Johnson & Johnson right now?
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson and Tjx Companies. The Motley Fool has a disclosure policy.
