Dividend stocks almost never go out of fashion thanks to the allure of steady payment checks and hedge against uncertainty these equities provide, especially during troubled times. A latest report from Wisdom Tree cited data from American economist Robert J. Shiller, who calculated in a research paper that since 1957, dividends on average grew by 5.7% per year, easily surpassing the 2% inflation rate every year. Over the past 64 years, dividends fell only during six years, while stock prices declined in 18 years during the same period.
Dividend Growth or High Yields?… Or Both?
Should you invest in high-yield dividend stocks or dividend growth stocks with decades of consistent dividend increases to their record? This has been a topic of discussion in both Wall Street and academia for over the past several decades. But experts believe that during volatile times when interest rates are high, investing in high-quality dividend stocks with high yields and growth track record seems to be the best and safest option for investors. Sterling Capital in a latest report talked about this in the context of rate hikes:
“While we have been through a period of 11 Federal Reserve (Fed) rate hikes and uncertain macroeconomic conditions, we believe companies that can pay a secure and growing dividend demonstrate the strength of an investment. As we have shared in recent months in our discussion of advantaged value, companies with these characteristics tend to have differentiated positions, possibly achieving strong market shares with the benefits of economies of scale and resilient balance sheets. They are typically able to play both offense and defense as the economy moves through uncertain times.”
Dividend Growth Stocks Over High-Growth AI Stocks?
Answering a question about why he’d prefer dividend growers over high-growth software companies while talking to CNBC back in March, David Bahnsen, the CIO at Bahnsen Group, said that he has “tons of track record” to prove that dividend growers perform better in the long run, and that “ultimately” cash flow is “king.” The analyst gave examples of Tesla and Apple who were not performing well in terms of stock prices at that time, and said that “those things” don’t end well, referring to strong bull runs of tech companies.
Asked whether he’d still allocate some portion of his portfolio to AI, Bahnsen said that “margins don’t hold with that kind of revenue” growth,” referring to high valuations of companies in the AI space. The investor said he owns dividend-growing stocks like Broadcom which is very much exposed to AI but also have a strong dividend growth history and strong cash flows.
Methodology
For this article we first scanned Insider Monkey’s database of 919 hedge funds updated as of the first quarter of 2024 and listed down dividend-paying stocks with yields over 4% and at least 10 years of consistent dividend growth with strong hedge fund sentiment. From the long list of stocks we got as a result, we chose dividend stocks with the highest yields and consecutive number of years of dividend increases. We further narrowed down our selection to the stocks from this group and chose nine stocks with the highest number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
Photo by Karolina Grabowska: https://www.pexels.com/photo/hands-holding-us-dollar-bills-4968630/
9. Community Trust Bancorp, Inc. (NASDAQ:CTBI)
Number of Hedge Fund Investors: 7
With 43 straight years of consistent dividend increases Community Trust Bancorp, Inc. (NASDAQ:CTBI) is one of the best high-yield safe dividend stocks to buy according to hedge funds. Insider Monkey’s database of 919 hedge funds shows that seven hedge funds reported owning takes in Kentucky-based Community Trust Bancorp, Inc. (NASDAQ:CTBI). Interesting deposit costs amid rising interest rates have been burdening for the bank, but analysts believe things are improving. Net interest income in the first quarter of 2024 improved 1.4% to $43.88 million.
8. Universal Health Realty Income Trust (NYSE:UHT)
Number of Hedge Fund Investors: 8
With close to four decades of consistent divided increase and 7.8% dividend yield, Universal Health Realty Income Trust (NYSE:UHT) is one of the most attractive high-yield dividend stocks out there. Universal Health Realty Income Trust’s (NYSE:UHT) latest quarterly results showed that its rental revenue and FFO annualized jumped 10.33% and 3.23%, respectively, over the corresponding 3-year average figures. Net operating income also jumped 11.25% on an annualized basis. While the stock’s payout ratio is high (over 80%), Universal Health Realty Income Trust’s (NYSE:UHT) stellar dividend growth record is enough to give investors confidence.
Insider Monkey’s database of 919 hedge funds shows that 8 hedge funds reported owning stakes in Universal Health Realty Income Trust (NYSE:UHT).
7. United Bankshares, Inc. (NASDAQ:UBSI)
Number of Hedge Fund Investors: 12
Virginia-based banking company United Bankshares, Inc. (NASDAQ:UBSI) is one of the best high-yield dividend growth stocks, with 50 years of consistent dividend increases to its record. United Bankshares, Inc. (NASDAQ:UBSI) is making an effort to reduce debts. At the end of 2022 its debt stood at $2.20 billion. This figure came down to $1.99 billion at the end of last year. Overall deposits by the end of last year came in at $22.82 billion, up from $22.37 billion United Bankshares, Inc. (NASDAQ:UBSI) reported at the end of June 2023.
Insider Monkey’s proprietary database of 919 hedge funds shows that 12 funds reported owning stakes in United Bankshares, Inc. (NASDAQ:UBSI). The biggest stakeholder of United Bankshares, Inc. (NASDAQ:UBSI) during this period was Ken Fisher’s Fisher Asset Management which had a $43 million stake in United Bankshares, Inc. (NASDAQ:UBSI).
6. Southside Bancshares Inc (NASDAQ:SBSI)
Number of Hedge Fund Investors: 13
Southside Bancshares Inc (NASDAQ:SBSI) has a dividend yield of about 5.4% and three decades of consistent dividend increases under its belt. This makes the bank one of the best high-yield dividend growth stocks to buy now according to hedge fund investors. The bank’s management talked about cost-cutting measures during its latest earnings call:
“Non-interest expense increased $1.7 million on a linked quarter basis to $36.9 million, driven by increases in salaries and employee benefits, which included approximately $618,000 associated with future cost reductions. During last quarter’s earnings call, I reported our budget of $37.9 million quarterly for non-interest expense in 2024. As a result of the cost containment initiatives, we expect to realize approximately $400,000 of savings in the second quarter and $700,000 to $800,000 in the third and fourth quarters of the year. Our fully taxable equivalent efficiency ratio increased to 55.54% as of March 31st, from 50.86% as of December 31st. We recorded income tax expense of $4.6 million, an increase of $2.4 million compared to the fourth quarter. [read the full earnings call transcript here].”
The stock’s payout ratio is just over 50%, which is very close to its five-year average payout ratio of 49%. The company’s dividend is safe and faces no short-term risks. The company has a total capital ratio of 15.92% as of the end of March, higher than the minimum regulatory requirement of 10.50%.
Insider Monkey’s database of 919 hedge funds shows that 13 hedge funds reported owning stakes in Southside Bancshares Inc (NASDAQ:SBSI). The biggest stake in Southside Bancshares Inc (NASDAQ:SBSI) is owned by Israel Englander’s Millennium Management worth about $7 million.
5. Federal Realty Investment Trust. (NYSE:FRT)
Number of Hedge Fund Investors: 22
Federal Realty Investment Trust (NYSE:FRT) is a Maryland-based REIT. It’s one of the most popular high-yield dividend stocks among the over 900 hedge funds tracked by Insider Monkey. The company acquires and develops properties in affluent neighborhoods, where rents are high and tenant relationships continue for longer periods of time.
Federal Realty Investment Trust (NYSE:FRT) has a dividend yield of 4.4% and 56 consecutive years of dividend growth to its record. While the yield is slightly low when compared to peers in the REIT industry, Federal Realty Investment Trust’s (NYSE:FRT) strong fundamentals and impeccable dividend growth record makes it a standout. Wall Street analysts expect Federal Realty Investment Trust’s (NYSE:FRT) FFO to increase over the next five years. In 2024, FFO is expected to increase by 3.7% YOY. This growth rate is expected to jump to 5.26% in FY 2025 and 4.85% in FY 2026.
4. Black Hills Corporation (NYSE:BKH)
Number of Hedge Fund Investors: 27
South Dakota-based natural gas company Black Hills Corporation (NYSE:BKH) has a dividend yield of about 4.7%, and Black Hills Corporation (NYSE:BKH) has upped its dividend for 54 years without a break. Black Hills Corporation (NYSE:BKH) provides natural gas and electricity to residents in South Dakota. Since the pandemic Black Hills Corporation’s (NYSE:BKH) net income has seen consistent increases despite headwinds in the utilities sector, thanks to the company’s smart cost adjustments and capital discipline. Black Hills Corporation (NYSE:BKH) expects long-term EPS growth to come in at 4% – 6%. Black Hills Corporation (NYSE:BKH) also plans to allocate $4.3 billion through 2024 – 2028 in future growth.
Analysts believe one of the biggest growth catalysts for Black Hills Corporation (NYSE:BKH) is an expected rise in population in South Dakota as housing is cheaper (relatively) and job opportunities are growing. Black Hills Corporation (NYSE:BKH) has been able to raise dividends despite headwinds in the industry. In January, Black Hills Corporation (NYSE:BKH) upped its dividend by 4%.
3. UGI Corp. (NYSE:UGI)
Number of Hedge Fund Investors: 29
UGI Corp. (NYSE:UGI) is another high-yield utilities dividend stock in our list of the best high-yield dividend growth stocks. The stock’s dividend is over 6.2% as of May 29. Mizuho recently upgraded the stock saying UGI Corp. (NYSE:UGI) might be able to retain its EPS guidance for 2024.
Miller Value Income Strategy stated the following regarding UGI Corporation (NYSE:UGI) in its first quarter 2024 investor letter:
“The portfolio also recently bought its first utility. UGI Corporation (NYSE:UGI) distributes natural gas and electricity as well as liquid propane gas through its AmeriGas subsidiary, which is the largest retail propane distributor in the US. A true “dividend aristocrat,” UGI has paid shareholders a dividend for 139 consecutive years and looks poised to boost its dividend for the 37th consecutive year. At today’s price, the stock trades at its lowest price/earnings multiple in history, despite sporting a 6% yield with a plan to grow earnings power at a high single-digit rate.”
2. Enbridge Inc (NYSE:ENB)
Number of Hedge Fund Investors: 32
Canadian-based energy pipeline company Enbridge Inc (NYSE:ENB) posted Q1 results earlier this month. Adjusted EPS in the period came in at C$0.92. Distributable cash flow of C$3.5 billion in the period showed a 9% increase from the year-ago period .
While operating cash flow fell from $3.87 billion to $3.15 billion, analysts believe if we exclude maintenance capital expenditures, the actual figure was $3.16 billion
With a dividend yield of about 7% and a PE ratio of 19, energy pipeline company Enbridge Inc (NYSE:ENB) is one of the most popular Canadian dividend stocks among elite hedge fund investors. Enbridge Inc’s (NYSE:ENB) dividend yield is almost twice the industry average of 3.5%. Enbridge Inc (NYSE:ENB) has increased its dividend without a break since 2003.
1. Altria Group Inc. (NYSE:MO)
Number of Hedge Fund Investors: 38
Altria Group Inc. (NYSE:MO) is one of the best high-yield dividend growth stocks to buy now according to hedge funds, with 54 years of consistent dividend increases. While Altria Group Inc.’s (NYSE:MO) Q1 results were weak, its guidance impressed the Wall Street. Altria Group Inc. (NYSE:MO) expects adjusted EPS in the period to come in between $5.05 to $5.17, representing a growth rate of 2% to 4.5% from a base of $4.95 in 2023. The midpoint of this guidance is more than the Wall Street consensus of $5.11. Analysts are also welcoming Altria Group Inc.’s (NYSE:MO) decision about selling $2.2 billion worth of its stake in AB InBev. Altria Group Inc.’s (NYSE:MO) management talked about share buyback program during latest earnings call:
“Moving to capital allocation. In March, we sold a portion of our investment in ABI and expanded our share repurchase program to $3.4 billion. In expanding our repurchase program, we implemented a $2.4 billion accelerated share repurchase program under which we received 46.5 million shares in March, representing 85% of the ASR program. These repurchases are reflected in our weighted average shares outstanding for the quarter. We expect to receive shares representing the remaining 15% of the ASR program by the end of the second quarter. After the completion of the ASR program, we anticipate having $1 billion remaining under the currently authorized share repurchase program, which we expect to complete by year end. Turning to ABI’s financial results, we recorded $165 million of adjusted equity earnings for the quarter, down 8.3%.
As a reminder, we use the equity method of accounting for our investment in ABI and report our share of ABI’s results using a one quarter lag. Accordingly, our first quarter adjusted equity earnings represent our share of ABI’s fourth quarter earnings. Following the ABI transaction, our ownership of ABI is approximately 8.1% with a tax basis of approximately $1.2 billion. We continue to view the ABI stake as a financial investment, and our goal remains to maximize long term value of the investment for our shareholders. Turning to other capital allocation activity, we paid approximately $1.7 billion in dividends and retired $1.1 billion of notes that came due in the first quarter, and as of March 31, our debt to EBITDA ratio was 2.1 times. [read the full earnings call transcript here].”
Altria Group Inc. (NYSE:MO) is expected to generate strong FCF until at least FY 2026 based on current estimates, and the management expects to dole out about $6.92 billion as of FQ1’24.
Andvari Associates stated the following regarding Altria Group, Inc. (NYSE:MO) in its first quarter 2024 investor letter:
“Our second example of a high-yielding security is the stock of Altria Group, Inc. (NYSE:MO). Before we get into the details of why we started a position in Altria, a brief history is in order. The company was formerly known as Philip Morris before rebranding to Altria in 2003. Cynically, the rebranding was to minimize the negative attention from its tobacco business. However, the company also owned Kraft Foods and Miller Brewing, so it was logical to reflect its status as a conglomerate. Since rebranding, Altria has slowly “de-conglomerated”. It spun out Kraft in 2007. It spun out Philip Morris International in 2008. In 2021, it sold its Ste. Michelle Wine Estates business. Finally, last month Altria announced it is selling part of its 10% ownership in Anheuser-Busch InBev (BUD)
Andvari has followed Altria since we began our investment career. Profitability is extraordinary and the business requires minimal capital expenditures. Despite the volume of cigarettes having steadily declined—a great thing for our population health—Altria has still managed to grow revenues and profits with regular price increases…” (Click here to read the full text)
If you are looking for an AI stock that is as promising as Microsoft but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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