Last year was a good year for dividend investors. Some 850 companies announced they were raising their payout with the average increase exceeding 12%. Studies have found stocks that initiated and then raised their payouts handily outperformed non-dividend paying companies. J.P. Morgan Asset Management discovered that over the 40 years between 1972 and 2012, dividend-raisers returned an average of 9.5% annually versus just 1.6% non-dividend-paying stocks. This has led to some very promising stocks.
Yet it was a rather disappointing year for dividend stock royalty. Dividend Aristocrats, or S&P 500 stocks that have raised their payout for 25 years or more, only increased their payouts by an average of 5% last year. Performance was also lackluster. The ProShares S&P 500 Dividend Aristocrats ETF (NYSE:NOBL) produced a total return of just 8% for all of last year compared to 26% by the benchmark index.
Still, investing in dividend stocks is a smart choice. There has never been a decade going back to the 1930s when dividend stocks in the S&P 500 didn’t have positive returns. That includes through the Great Depression and the 2000s, the so-called “lost decade.” Dividend stocks always managed to produce growth for investors.
Below are three solid stocks with recent dividend increases. Income investors should enjoy excellent returns in 2024 and beyond by buying them today.
Fastenal (FAST)
Fastenal (NASDAQ:FAST) is boring. It sells fasteners, small parts, and tools to industrial and construction companies. But it’s a growing business and a profitable one that generates operating margins north of 20% annually. Its dividend is rising almost just as fast. Over the past decade the payout rose from $0.125 per share to its just-announced $0.39 per share, a 12% compounded annual increase. The latest hike was 11.4%, not including the special dividend it paid in December.
As it marks the 25th consecutive year of raising its dividend, Fastenal will become the latest addition to Dividend Aristocrats. You might want to make it an addition to your portfolio, too. However, there are several things to understand. First, it’s a cyclical business. Fastenal recently pointed to a slowing economy with the Purchasing Managers Index (PMI) marking its 14th consecutive month below 50. Anything below that level indicates an economy contracting; above that is expansion. However, that resulted in daily sales growth of just 3.7%, the lowest level since the pandemic. Moreover, it also indicates just how fast business grew when the economy reopened.
It’s not affecting Fastenal stock though. Shares are up 45% in the past year. Although the stock is not cheap, a market downturn could create a buying opportunity. It’s a stock you may want to buy anyway as it is a great long-term pick with plenty of growth still to come.
STAG Industrial (STAG)
Real estate investment trust STAG Industrial (NYSE:STAG) is a different kind of REIT. Rather than investing in single-family home mortgages or even office space, STAG Industrial focuses on single-tenant light industrial buildings. Most are warehouses or distribution facilities. Amazon (NASDAQ:AMZN) is its largest tenant accounting for 3% of total space. The rise of e-commerce has allowed business to boom. It also allowed STAG to dramatically increase rents.
The REIT noted in the third quarter that the push of e-commerce for facilities allowed it to double the rent on its warehouses. Overall it was able to increase rents on expiring leases by 54.2%. It has 112 million square feet of space across 568 properties, but the rent increases affected just 2.3 million square feet. That suggests as more leases expire over the coming years they will also be brought up to current market rates. It points to healthy growth for years to come.
STAG Industrial also just announced it was increasing its dividend to $0.123333 per share. Because the REIT pays its investors monthly it equates to an annual dividend of $1.48 per share. Now it doesn’t make big leaps higher with its increases. The typical hike is about a penny per year.
STAG Industrial has a lot of room to grow and seems to find itself in a sweet spot for investors. It’s raised the payout every year since going public in 2011 and makes an excellent stock to buy, particularly if you like getting paid every month to own shares.
Bank OZK (OZK)
Formerly the Bank of the Ozarks, Bank OZK (NYSE:OZK) is another standout dividend stock. Operating primarily in the Southeast and Southwest regions of the country, the financial stock offers the usual range of services you find at other banks, including loans, deposits, mortgages, wealth management, and trust services. Yet it also specializes in some unique areas such as homeowner association banking services, aircraft loans Small Business Administration loans, and agricultural lending.
The bank consistently outperforms its peers and the industry benchmarks in terms of efficiency, asset quality, and net interest margin. Bank OZK also sports a high and growing dividend yield of 3.2% annually, which is above the average of its peers and the S&P 500. Not only has it increased its dividend for 28 consecutive years but its increased the payout every quarter for the last 54 quarters. In Q4 it raised the dividend 2.7%. The payout ratio, or the amount of profits it uses to pay the dividend, is also low and stable at 26%, meaning it retains most of its earnings for reinvestment and growth. Bank OZK also has a strong balance sheet with a high capital ratio and low non-performing assets.
The bank stock has a long, solid track record of growth and profitability, with a 10-year average return on equity of 12.8% and a 15.4% earnings growth rate. With a loyal and growing customer base, high retention rates, and numerous cross-selling opportunities, Bank OZK is a dividend stock you can bank on, and one of the most promising stocks on the market.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.