Stocks to buy

Income Boosters: 3 Stocks With Newly Announced Dividend Hikes

Few investment strategies on Wall Street have proven to work as effectively as buying dividend stocks. Over the past 100 years, dividend payers outperformed those who didn’t pay a dividend by a wide margin.

There is good reason for that. Companies that share their success with investors are successful and profitable ventures with goods and services people want to buy. Typically, they’ve also been through several business cycles and weathered the storm in fine fashion. It’s natural they’d want to reward their shareholders as well.

Of special note are those stocks with rising dividends. In 2013, the wealth asset division of JPMorgan Chase (NYSE:JPM) published a study comparing the returns of dividend stocks and non-dividend stocks. It found that over the 40 years between 1972 and 2012, companies that initiated and then hiked their dividends returned an average of 9.5% annually. Non-income-producing stocks generated only 1.6% annually during that same period.

Particularly in times of economic uncertainty such as we’re in, investors might want to focus their attention on stocks with recent dividend hikes. Below are companies that recently announced they were raising their payouts. Let’s dive in and see if they are worth buying for your portfolio.

American Eagle Outfitters (AEO)

Source: Shutterstock

Heading into the Christmas holiday, American Eagle Outfitters (NYSE:AEO) remains one of the top 10 retail stocks. Shares are up nearly 40% in 2023 and more than doubled from the lows hit in late spring. The performance isn’t as strong as rival Abercrombie & Fitch (NYSE:ANF), but it is noteworthy, nonetheless, and an indicator that retail stocks are worth watching again.

American Eagle enjoyed a strong third quarter, with top and bottom line numbers beating estimates. AEO’s operating margin guidance, however, was below expectation, and shares sharply tumbled. But they immediately reversed course again and have since regained all the lost ground and more.

The retailer’s clothing continues to resonate with consumers, especially with its Aerie brand. Revenue and comparable sales for the unit jumped 12% each for the period. It remains on track to becoming a $2 billion brand in just a few years, with $1.1 billion in sales generated through the first nine months of the year. It should easily surpass the $1.5 billion in sales it notched last year. 

American Eagle Outfitters also announced a 25% hike in its dividend as its business and free cash flow improved. It’s a nice recovery for the retailer that only two years ago had temporarily suspended its payout. Amid roaring inflation and rising interest rates, retailers across the industry faced significant financial woes. 

That’s part of the reason retail stocks are doing so well this year. Inflation has ameliorated some, and the Federal Reserve paused its frenzied rate hike program. Trading at a fraction of sales and less than 7x free cash flow, American Eagle Outfitters is a stock still priced below its historical averages.

Mastercard (MA)

Source: David Cardinez /

Payments processor Mastercard (NYSE:MA) may run second behind industry giant Visa (NYSE:V), but it’s a behemoth in its own right and should not be ignored. When the economy seems choppy at best, the name behind some 3 billion credit cards in circulation is a rock-solid investment.

A recession would indeed have consumers cut back on spending and lenders handing out loans, which would affect sales and profits. Yet Mastercard is focused solely on payment processing. Because it doesn’t engage in lending, consumer loan defaults would not impact the company. It removed that risk from the equation.

Understand that a recession is typically a short-lived event. Double-digit downturns are measured in months. In contrast, the ensuing bull markets that invariably follow tend to go on for years. That means Mastercard’s long-term growth will far exceed any limited contraction it experiences.

Mastercard just announced a 16% hike in its dividend. The payout will rise from $0.57 to $0.66 per share. Since it began paying dividends in 2010, Mastercard has boosted its payout every year. It also said it would authorize an $11 billion stock buyback program as it continues to return value to shareholders.

The payments processor’s stock is not cheap, and shares are up 20% year to date, but you’re buying in a business on a firm financial footing. Paying up for quality is worth it here.

Realty Income (O)

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Real estate investment trust (REIT) Realty Income (NYSE:O) is almost a no-brainer when it comes to stocks raising their dividends. Virtually anytime you check on its shares, it’s likely raising the payout. Since the REIT listed its shares on the NYSE in 1994, it has raised its dividend 123 times. The latest increase was announced on Dec. 12, and marks the 105th consecutive quarterly dividend hike.

Moreover, Realty Income pays its dividend to shareholders every month. The latest payout will be the 642nd consecutive payment in the REIT’s 54-year history. It’s the reason the REIT bills itself as the Monthly Dividend Company.

Realty Income’s stock is down 10% year-to-date as concerns about the commercial real estate market amid a possible recession shook investor confidence. The collapse of several regional banks also weighed on the stock as obtaining loans would be more difficult. It wasn’t much of a worry for the REIT, though.

Its tenant list consists primarily of top-tier clients, including Dollar Tree (NASDAQ:DLTR), Dollar General (NYSE:DG) and CVS Health (NYSE:CVS). These are not businesses at risk of shutting down or even contracting. They are — in fact — growing. It’s why Realty Income is rebounding and why its stock deserves a spot in your portfolio.

On the date of publication, Rich Duprey held a long position in O stock. The opinions expressed in this article are those of the writer, subject to the Publishing Guidelines.

Rich Duprey has written about stocks and investing for the past 20 years. His articles have appeared on, The Motley Fool, and Yahoo! Finance, and he has been referenced by U.S. and international publications, including MarketWatch, Financial Times, Forbes, Fast Company, USA Today, Milwaukee Journal Sentinel, Cheddar News, The Boston Globe, L’Express, and numerous other news outlets.