The turmoil the stock market has been through this year has caused significant pain to a lot of investors. However, periods like this are inevitable, and while it is painful to endure, it also creates terrific opportunities for those investors with a long-term mindset, and the patience to stay the course.
One way we like to stay the course is to focus on great dividend-paying stocks, and in particular, those with proven histories of paying rising dividends to shareholders. There are many groups of stocks that have varying degrees of dividend longevity, with one of our favorites being the Dividend Champions.
Dividend Champions are stocks that have increased their payouts for at least 25 consecutive years. Within that group, we can further narrow our criteria to those that have the highest yields.
Let's take a closer look at three Dividend Champions that all have high yields, and that we believe are good buys today.
You Could Use a VF
Our first stock is V.F. Corp. (VFC) , which is a designer, marketer, and distributor of branded lifestyle apparel, footwear, and accessories across most of the world. V.F. operates through three segments: Outdoor, Active, and Work, and owns some very well-known brands, including North Face, Timberland, Vans, Supreme, and Dickies, among others.
V.F. sells its goods through a wide variety of specialty stores, department stores, national chains, mass merchants, direct-to-consumer, and its own retail stores. The company was founded in 1899, produces about $12 billion in annual revenue, and trades with a market cap of just under $11 billion.
V.F. doesn't have a particularly strong history of growth in recent years. In fact, this year's expected earnings are about equal to that of 2014, and far below the peak of 2018. However, we think V.F. can begin producing growth now that the supply-chain and demand issues of the pandemic period are beginning to ease, and expect 7% growth moving forward.
Despite the lack of growth recently, V.F. has managed to grow its dividend for an outstanding 49 consecutive years. For a company that sells discretionary products to consumers, being able to weather economic storms and still raise the dividend for nearly half a century is extremely impressive. In the past decade, average annual growth in the payout has also been very high, at just over 10%. We don't believe that sort of dividend growth is sustainable, but we also think V.F. can continue raising its payout indefinitely.
We see the payout ratio at about two-thirds of earnings for this year, so while it is somewhat elevated, it is nowhere near the point where we'd be concerned about dividend safety.
Finally, V.F. yields a massive 7% today, putting it firmly into yields that are generally reserved for REITs and BDCs, rather than apparel companies. This represents a very strong buying chance for income-focused investors, in our view.
A Healthy REIT
Our next stock is Universal Health Realty Income Trust (UHT) , which is a REIT that focuses on healthcare and human service-related facilities. That includes things like acute care hospitals, rehabilitation hospitals, medical office buildings, emergency departments, and childcare centers. The trust owns portions or all of 71 different properties in the U.S.
Universal was founded in 1986, generates just under $90 million in annual revenue, and trades today with a market cap of $616 million.
Universal's growth history is about what one may expect for a REIT, given the asset class is generally focused on income rather than earnings growth. Still, Universal has managed more than 3% annual average growth in earnings in the past decade, which has helped fuel its dividend growth. We see 2.5% earnings growth in the years ahead in a continuation of this pattern.
Universal's dividend has been increased for 36 consecutive years, which puts it in rare company among REITs. The reason is because REITs tend to be quite cyclical, and because they generally pay out substantially all of their earnings as dividends, when earnings decline, so do dividends. Not so with Universal, and it stands apart for that reason.
The dividend has only grown at about 1.5% annually, and we see something similar in the years to come, given modest earnings expansion that is forecast. In addition, the payout ratio is closing in on 80%, so we don't see a lot of upside there.
Still, the stock yields about 6.2% today, so it is a very strong income stock as it stands, particularly given its impressive history of dividend increases.
Turn Over a New 'Leaf'
Our final stock is Universal Corp. (UVV) , which is a supplier of leaf tobacco and plant-based ingredients to tobacco product and food manufacturers worldwide. The company's primary business is procuring, processing, packing, and shipping leaf tobacco that is used to make various products such as cigars and cigarettes. It also has a small food ingredients business that are based upon vegetables, fruits, and botanical raw materials.
Universal was founded in 1886, generates about $2 billion in annual revenue, and trades with a market cap of $1.2 billion.
Universal has also experienced a lack of growth in recent years, as the market for leaf tobacco continues to shrink due to declining smoking rates across the world. However, we think the company's cost saving efforts, and its size in this niche market, mean it can produce 1.5% growth looking forward.
Universal's steady cash flows have enabled it to raise the dividend for 51 consecutive years, making it a Dividend King. The average increase for the past decade has been just under 5%, so the stock has provided high levels of income, and with respectable growth rates.
The payout ratio is very high at about 90%, but given the company's predictable cash flows and lack of capital expenditures, we still think the dividend is likely to continue to be raised, albeit at low rates of growth.
Like the others on this list, Universal has a very high yield, which comes in at 6.5%.
Final Thoughts
While not all Dividend Champions are inherently buys simply because of their dividend increase streaks, we find V.F. Corp., Universal Health, and Universal Corp. to have outstanding yields, and strong prospects for dividend-focused investors. As all have come down in price in 2022, valuations are better, and yields are at multi-year highs, making them quite attractive today.
