With signs pointing to the Federal Reserve being ready to start easing interest rates again, it's probably a good time to start warming up to dividend stocks. Yields on traditional fixed-income vehicles are likely heading lower in the coming months, and it's great to own dividend stocks with a history of pushing up their payouts.
Three that I like right now are Sirius XM Holdings(NASDAQ: SIRI), Realty Income(NYSE: O), and Walt Disney(NYSE: DIS). They all pay regular dividends that have been hiked over the past year. They also have some compelling near-term catalysts to move higher in the coming months. Let's take a closer look.
1. Sirius XM Radio
The only satellite radio play in the country since the 2009 combination of Sirius and XM, Sirius XM is yielding a juicy 3.5% right now. It has raised its payout every year since initiating a distribution policy eight years ago, with the rate nearly tripling in that time. It last gave its dividend rate a boost in November of last year.
Critics will point out that revenue growth has been slowing since the dividends started rising, and that's fair. The long-term appeal of satellite radio is iffy, and investors saw 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 eyeing just a 2% decline in revenue this year. It's still generating a lot of positive earnings and free cash flow.
Image source: Getty Images.
The stock is down a blistering 45% in 2024, but there are some near-term catalysts that can turn momentum around for its scorched investors. Let's start with the untracking of its tracking stock. Media titan John Malone has been Sirius XM's largest stakeholder for more than a decade, and investors can participate in that ownership through Liberty Sirius XM Group (NASDAQ: LSXMA) tracking shares. It's been a confusing distraction, and it doesn't help that investors can buy Sirius XM at a discount by buying the tracking stock. This is about to change in the coming weeks. Liberty Sirius XM shareholders are voting to combine their shares with the stock it's tracking in two weeks. The transaction -- if it passes, as it likely will -- would be finalized on Sept. 9.
Another catalyst is that Sirius XM's undervalued. Its fundamentals haven't been cut nearly in half the way its stock has this year. This is still a strong media monopoly with a massive 33 million subscribers, and its churn rate is actually at the low end of its historical range. Sirius XM is trading for just 9 time trailing earnings, and analysts see record earnings per share for the media stock next year. How can a gradually shrinking business keep its bottom line moving higher? Sirius XM has been one of the more voracious buyback artists, and gobbling up its outstanding shares means earnings per share growing faster than net income itself. With the leading streaming radio services raising prices, all Sirius XM has to decide now is whether to hold its ground and gain market share or follow along and push its high-margin business even higher.
2. Realty Income
The highest-yielding name here is Realty Income. That makes sense, as the lone real estate investment trust (REIT) on this list is required to return the lion's share of its funds from operations to its shareholders. It's hard to decide what is more massive, its empire of more than 15,000 commercial properties worldwide or its 29-year streak of annual dividend increases.
You will find REITs paying more than its current 5.3% yield, but you're not likely to find the same kind of risk-averse pedigree. Its tenants tend to be in resilient industries, and the renters also absorb the volatile burden of real estate taxes, property insurance, and other operating expenses.
Realty Income pays out monthly dividends, and that 29-year run of meatier disbursements has actually treated investors to 107 straight quarters of hikes. The highest-yielding money market funds may be close to Realty's current 5.3% yield, but those distributions will likely keep heading higher as the returns on short-term savings vehicles inch lower.
3. Disney
You probably didn't expect Disney to be on a list of companies with rising dividends. The entertainment leader suspended its semiannual payouts when the pandemic slammed most of its businesses. However, the distributions were reinstated earlier this fiscal year, and Disney has already lifted its second semiannual dividend by 50%.
The 1% yield isn't very exciting, but capital appreciation can be substantial from its depressed stock that is trailing the market for the fourth year in a row. Its studio is back on track with two of the biggest movies of the summer. Disney+ is now profitable. Its theme parks continue to be moneymaking industry leaders. Disney reports its fiscal third-quarter results on Wednesday morning. It's time for Sleeping Beauty to awaken after a four-year slumber.
Should you invest $1,000 in Sirius XM right now?
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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.
