Income investors have been hammered with volatility and share price drops as worries creep in about the health of high yield stocks. However, some stocks are bucking the trend and increasing their dividend payments signaling strength to their investors. Look for these 4 stocks to be rising stars in the high yield sector.
After two months of high volatility and falling share prices from many of the high yield stocks I follow, own, and recommend, the force that drives my high-yield investment strategy is starting to show up: Dividend Increases.
A large portion of my income stock selection process focuses on the potential for companies to grow dividend / distribution rates over time. My strategy is that if dividends are increased by a meaningful amount year after year, share prices will follow, providing both a rising income stream and a very attractive total return.
This strategy has been severely tested over the last several months, especially with the energy sector, master limited partnerships – MLPs. The steep drop in the price of crude oil has resulted in a stock market sell-off across the energy related stocks and partnership units. The market did not care that the quality midstream (processing, transport, storage) MLPs have stable fee-based revenue streams and plans that include steady distribution increases paid to investors. Frankly, this is always an inherent risk when owning stocks in sectors related to commodities, like oil and gas, and shouldn’t be taken lightly by investors.
Now that we are moving into the second half of January, many MLPs and other types of income stocks will be announced their 2014 fourth quarter dividends / distributions. The few companies that have already announced have stayed on track with their guidance, giving investors confidence that the growing income streams they expected when investments were made are still in the cards.
The good news is that share prices on many MLPs and other income stocks are still down significantly, meaning you’re buying them “on sale”. You can invest now and earn an above historical average yields and have the confidence that those payouts will continue to grow through 2015 and beyond. Here are four companies whose early distribution announcements provide a strong indicator that many more dividend increase announcements will follow over the next several weeks.
Plains All American Pipeline, LP (NYSE:PAA) increased its quarterly distribution by 2.27% compared the third quarter payout and the fourth quarter distribution will be 9.8% higher than a year ago. PAA has been a truly steady 9.5% to 10% annual distribution growth machine for years and currently yields 5.5%.
Oneok Partners LP (NYSE:OKS) just announced a 1.94% increase above its third quarter distribution. The OKS distribution is up 8.2% over the last year. Since the previous, third quarter distribution was paid the OKS unit price has dropped by 30%. The drop plus distribution increase puts the current yield at 7.8% compared to 5.5% early last fall.
Tallgrass Energy Partners LP (NYSE:TEP) is a high-growth pipeline MLP that just increased its quarterly distribution by 18% compared to the third quarter payout. The TEP distribution rate is up 54% in the last year and this MLP yields 4.4%.
In another income sector, healthcare focused REITOmega Healthcare Investors Inc
(NYSE:OHI) just announced its 10th consecutive quarterly dividend increase. The OHI dividend is growing by 1 cent every quarter, which works out to a 7.5% annual growth rate. This REIT yields 4.8%.
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