Three Blue Chips about to Raise their Dividends

Dividend Investing, Growth Stocks, Warren Buffett

Last year, the Federal Reserve said it planned to hike interest rates three times in 2019. Thanks to the market’s slide late last year, those plans have been shelved.

Now there are some folks on Wall Street who think the Fed will cut interest rates three times this year. How times have changed!

With lower interest rates, that means dividend-paying stocks are more valuable. But investors shouldn’t chase after any stock with a generous yield. Some have high yields because the market doesn’t trust them, and neither should you.

Here are three safe, blue-chip income stocks that are likely to raise their dividends later this month.

At the top of our list is Medtronic (MDT), the medical devices stalwart. As Baby Boomers enter their golden years, they’re slowly becoming bionic, and that’s where Medtronic comes in. The Boomer Generation has gone from hippies to hip replacement, and joints to new knee joints.

Medtronic makes all sorts of medical devices. Las year, the company generated more than $30 billion in sales. Medtronic operates in 140 countries and employs over 86,000 people.

In the dividend department, Medtronic currently pays out 50 cents per share each quarter. The company has raised its dividend for the last 41 years in a row. I think we’ll see #41 very soon.

Wall Street sees Medtronic earnings $5.44 per share for this fiscal year. If that’s right, then the company can easily afford another dividend hike. A few weeks ago, the company reported fiscal Q4 earnings of $1.54 per share. That was eight cents better than estimates.

In the need few weeks, I expect Medtronic to raise their quarterly dividend to 54 cents per share. This one is a favorite of income investors who like to see steady growth.

Target (TGT) has turned itself around very impressively this year. Not too long ago, investors didn’t want to go near Target, but the retailer proved them wrong. Shares of Tar-jay are up more than 30% this year.

Let’s take a step back to look at the whole story. Just before Thanksgiving, Target released a soggy earnings report for its fiscal Q3 (ending in October). The company missed estimates by three cents per share, traders punished the stock.

We were told that Target simply could not compete against Amazon. Then came the Q4 report which was better. Target managed to bear Wall Street’s forecast by one penny per share. Recently, Target released their Q1 report and it crushed expectations. Target earnings $1.53 per share which was ten cents better than estimates. The stock jumped 10% after the report.

Best of all, Target is making advances in e-commerce. For the quarter, online sales rose by 42%. I guess they can compete against Amazon. The company also maintained its outlook for this year, despite the looming trade war with China.

Target has one of the longest dividend streaks on Wall Street. The company has sweetened its dividend every year for the last 51 years in a row. Target’s current quarterly dividend is 64 cents per share. In recent years, the dividend hikes has come in mid-June, so look out for the next one.

This year, I’m expecting Target to raise their dividend to 67 cents per share.

Lastly is Starbucks (SBUX). The coffee giant is another big winner in recent months. Over the last year, SBUX is up more than 44%. What’s unusual is that the stock was basically stuck in neutral for the three years prior to that.

That raises an interesting question—how does an investor know if a poorly performing stock will turn itself around? There’s no magic formula but a solid dividend is a good clue. Despite a flat-lining share price, Starbucks continued to raise its quarterly dividend.

The dividend from Starbucks grew from 16 cents per share in 2015 to 36 cents per share today. Those increases are important. That higher dividend signals confidence from the company to the investing public.

Consider how strong long-term dividends are. If you had bought Starbucks ten years, then today the dividend works out to a 19% yield on your initial investment. Not bad for a coffee company.

Those signals were telling us something. Sure enough, in the April earnings report, Starbucks beat earnings and raised its full-year forecast. For the quarter, the company made 60 cents per share. That beat expectations of 56 cents per share.

The company now sees full-year earnings ranging between $2.75 and $2.79 per share. The previous range was $2.68 to $2.73 per share. The shares recently completed their best five-day gain in seven months.

Last year, Starbucks announced a dividend increase on June 19 so another increase could happen around that time this year. I think the coffee chain should increase its dividend to 40 cents per share. They can easily afford it.

Starbucks went public in 1992 at a price of (adjusting for splits) of 26.5 cents per share. Lately, SBUX has been above $82 per share. You won’t find much better growth anywhere.

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