Now that there are signs that the Federal Reserve is ready to cut rates again, it's probably a good time to warm up to dividend stocks. Yields on traditional fixed income are likely to fall in the coming months, and it's great to own dividend stocks that have a history of boosting their payouts.
Three that I like right now are: Sirius XM Holdings (NASDAQ: SIRI), Real estate income (NYSE: O)And Walt Disney (NYSE: DIS). They all pay regular dividends that have increased over the past year. They also have some compelling short-term catalysts to move higher in the coming months. Let’s take a closer look.
1. Sirius XM Radio
The country’s only satellite radio broadcaster since the combination of Sirius and XM in 2009, Sirius XM now yields a juicy 3.5%. It has raised its payout every year since it adopted a distribution policy eight years ago, nearly tripling the rate in that time. It last boosted its dividend rate in November of last year.
Critics will point out that revenue growth has slowed since dividends began increasing, and rightly so. The long-term appeal of satellite radio is questionable, and investors have seen Sirius XM's revenue and subscriber count decline slightly over the past year. It's worth noting that this isn't a mass exodus. Sirius XM is targeting a revenue decline of just 2% this year. It's still generating plenty of positive earnings and free cash flow.
Shares are down a staggering 45% through 2024, but there are a number of near-term catalysts that could reverse the momentum for its burned-out investors. Let’s start by unfollowing its tracking stocks. Media giant John Malone has been Sirius XM’s largest shareholder for more than a decade, and investors can get a stake in that ownership via Liberty Sirius XM Group (NASDAQ: LSXMA) tracking stocks. It was a confusing distraction, and it doesn't help that investors can buy Sirius XM at a discount by buying the tracking stock. That's all set to change in the coming weeks. Liberty Sirius XM shareholders will vote on whether to combine their shares with the stocks it tracks in two weeks. The transaction — if approved, which is likely — would close on Sept. 9.
Another catalyst is that Sirius XM is undervalued. Its fundamentals haven’t been halved like its stock has been this year. This is still a powerful media monopoly with a whopping 33 million subscribers and its churn rate is actually at the low end of its historical range. Sirius XM is trading at just 9 time trailing earnings and analysts are expecting record earnings per share for the media stock next year. How can a gradually shrinking company keep its profit margins up? Sirius XM is one of the most voracious buyback artists around and gobbling up its outstanding shares means that its earnings per share are growing faster than its net income itself. With the leading streaming radio services raising prices, Sirius XM now has a decision to make whether it wants to hold its ground and gain market share or follow suit and grow its high-margin business even further.
2. Real estate income
The highest-yielding name here is Realty Income. That makes sense, since the only real estate investment trust (REIT) on this list must return the lion’s share of its operating funds to shareholders. It’s hard to decide what’s bigger, its empire of more than 15,000 commercial properties worldwide or its 29-year streak of annual dividend increases.
You will find REITs that pay more than the current 5.3% yield, but you probably won’t find the same kind of risk-averse pedigree. The tenants tend to be in resilient sectors, and the tenants also absorb the volatile burden of property taxes, property insurance and other operating costs.
Realty Income pays monthly dividends, and that 29-year streak of stronger payouts has actually given investors 107 consecutive quarters of increases. The highest-yielding money market funds may be close to Realty's current yield of 5.3%, but those payouts are likely to continue to rise as yields on short-term savings vehicles decline slightly.
3. Disney
You probably didn’t expect Disney to be on a list of companies with rising dividends. The entertainment leader suspended its semi-annual dividend payments as the pandemic hit most of its businesses. But the payments were reinstated earlier this fiscal year, and Disney has already raised its second semi-annual dividend by 50%.
The 1% yield isn’t terribly exciting, but the capital appreciation could be substantial from its depressed stock, which has lagged the market for the fourth year in a row. The studio is back on track with two of the biggest films of the summer. Disney+ is now profitable. The theme parks remain money-making leaders in the industry. Disney reports third-quarter earnings on Wednesday morning. It’s time for Sleeping Beauty to wake up after a four-year slumber.
Should You Invest $1,000 in Sirius XM Now?
Before you buy Sirius XM stock, here are some things to consider:
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Rick Munarriz has positions in Realty Income and Walt Disney. The Motley Fool has positions in and recommends Realty Income and Walt Disney. The Motley Fool has a disclosure policy.
3 Dividend Stocks to Double Down on Now was originally published by The Motley Fool
