For 2018, we’ve chosen to highlight three stocks that have a long history of regular dividend payments. Their strong growth prospects also position them to increase those payments over the next few years.
We continue to recommend that income-seeking investors cut their risk with a broad portfolio of high-quality, dividend-paying stocks. The appeal of each of our stocks of the year is further enhanced by its attractive multiple to projected earnings or cash flow.
• Emera aims to boost its payout by 8% a year through 2020
• AT&T’s acquisition of Time Warner should spur more dividend hikes
• Dream Office REIT’s distribution is much more sustainable after recent cut
EMERA INC. $46(Toronto symbol EMA; Income-Growth Payer Portfolio, Utilities sector; Shares outstanding: 227.8 million; Market cap: $10.5 billion; Dividend yield: 4.9%; Dividend Sustainability Rating: Highest; www.emera. com) owns 100% of Nova Scotia Power, that province’s main electricity supplier. It also holds interests in several power plants and natural gas pipelines in the U.S. and the Caribbean.
In July 2016, Emera purchased Teco Energy for $13.9 billion. That firm supplies electricity and natural gas to 1.05 million customers in Tampa Bay, Florida, as well as natural gas to 510,000 customers in New Mexico.
Thanks to the additional cash flow from Teco, Emera has raised its quarterly dividend by 8.1%. Starting with the November 2017 payment, investors receive $0.565 a share, up from $0.5225. The new annual rate of $2.26 yields a high 4.9%.
The company also plans to increase its dividend by 8% each year through 2020. That target seems reasonable considering Emera’s regulated operations currently supply 90% of its earnings. The company aims to pay out 70% to 75% of its earnings as dividends.
Emera will probably earn $2.87 a share in 2018. The stock trades at an attractive 16.0 times that estimate.
Emera is a top buy for 2018.
AT&T INC. $37(New York symbol T; Income-Growth Dividend Portfolio, Utilities sector; Shares outstanding: 6.1 billion; Market cap: $225.7 billion; Dividend yield: 5.4%; Dividend Sustainability Rating: Highest; www.att. com) is the largest wireless carrier in the U.S. It also offers traditional phone and satellite TV services.
Starting with the February 2018 payment, the company will raise its quarterly dividend by 2.0%. Investors will then receive $0.50 a share, up from $0.49. The new annual rate of $2.00 yields a high 5.4%. AT&T has raised the annual payment for 34 consecutive years.
Despite opposition from the U.S. Department of Justice, the company still plans to acquire media giant Time Warner Inc. (New York symbol TWX). In a trial set to begin in March 19, it will ask the court to approve the deal.
AT&T intends to use Time Warner’s content to attract more users to its wireless and TV services. However, the government claims the deal would let AT&T (which also owns the DirecTV satellite TV system) unfairly increase the prices that rival TV networks pay to access Time Warner programming.
“Our strong cash flows and outlook for the business allow us to raise our dividend for the 34th consecutive year. We’re committed to returning value to our shareholders, and we’re pleased to deliver yet again.” —Randall Stephenson, AT&T CEO
If it wins in court, AT&T will pay $85.4 billion, in cash (50%) and shares (50%), for Time Warner. If you include that firm’s debt, the total value of the takeover is $108.7 billion.
Excluding Time Warner, AT&T should earn $2.97 a share in 2018. The stock trades at just 12.5 times that forecast.
AT&T is a top buy for 2018.
DREAM OFFICE REIT $23(Toronto symbol D.UN; Cyclical-Growth Dividend Payer Portfolio, Manufacturing & Industry sector; Units outstanding: 74.6 million; Market cap: $1.7 billion; Dividend Sustainability Rating: Average; Dividend yield: 4.3%; www.dream.ca) owns and manages 46 office and retail properties in major Canadian cities. Its occupancy rate is 90.3%.
With the July distribution, Dream Office reduced its monthly payout from $0.125 to $0.08333. The annual rate of $1.00 still yields a high 4.3%. In the quarter ended September 30, 2017, the REIT paid out just 52.1% of its cash flow.
Dream Office has now substantially completed its strategic plan to sell its less-important properties and use the proceeds to pay down its high-interest debt. It also bought back 21.0 million, or 20.3%, of its units for $440.0 million.
Due to the sale of properties, the REIT’s revenue in the third quarter of 2017 fell 35.3%, to $110.5 million from $170.7 million a year earlier. Cash flow per share fell 22.6%, to $0.48 from $0.62.
However, now that its restructuring is complete, Dream has a stronger balance sheet. Its long-term debt as of September 30, 2017, was $1.2 billion, or a still high 71% of its market cap. But that debt is down 47.4% from the end of 2016. The REIT’s high-quality office portfolio is also better focused on properties in downtown Toronto and other key markets.
Dream Office units trade at 14.7 times the REIT’s forecast 2018 cash flow of $1.56 a unit.
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