6 Cheap Dividend Stocks Worth Buying Before They Raise Their Dividends

Dividend Stocks
  • Raytheon Technologies (RTX) is due to raise its dividend at the end of April – trades at 20x and 2% yield;
  • Apple (AAPL) is due to raise its dividend in June – trades for 28 times earnings and a 0.5% yield;
  • Chubb Limited (CB) has paid the same dividend for 4 quarters – likely to hike in May – 14.6x P/E and 1.48% yield;
  • Marathon Oil and Gas (MRO) will likely raise its dividend at the end of April – 7x forward and 0.85% yield;
  • Devon Energy (DVN) has a quarterly base and variable dividend – likely to rise in April – 8.8x and 6-7% yield;
  • Chesapeake Energy (CHK) quarterly fixed and variable dividend – likely to rise this quarter – 9x and 6% yield.
Source: Shutterstock

These seven  dividend stocks are worth buying now. They are highly likely to raise their dividends shortly or in their next dividend declaration. Moreover, their stock prices are very cheap.

In addition, at the end of the article, I list three additional dividend stocks that are likely to raise their dividends after their next payment or soon thereafter.

These dividend stocks tend to rise when the company announces a dividend increase. Their consistency, their value metrics and their ability to fund the dividend raise are reasons why the stocks tend to rise.

Let’s dive in and look at these stocks.

RTX Raytheon Technologies  $98.86
AAPL Apple $171.51
CB Chubb $214.05
MRO Marathon Oil and Gas $24.43
DVN Devon Energy $58.13
CHK Chesapeake Energy $91.31

Raytheon Technologies (RTX)

A booth showcasing various technologies offered by Raytheon.

Source: Jordan Tan / Shutterstock.com

Market Capitalization: $147 billion

Raytheon, the defense and aerospace company, usually raises its dividend every four quarters. Its last dividend announcement was on Feb. 11 for 51 cents, the fourth in a row. The company’s next dividend announcement is likely to be at the end of April, around the week of April 25. Therefore, the company is likely to announce a dividend increase later this month.

Raytheon has paid cash dividends on its common stock every year since 1936. Lately, the company has been raising the dividend by around 3 to 4 cents, or about 7% or so. So the next quarterly dividend could take it to 54.5 cents or higher. That works out to $2.18 annually, giving RTX stock a dividend yield of 2.2% at today’s price of $98.86.

Presently RTX stock trades at a forward price-to-earnings multiple of 20.24 times this year’s earnings and 17 times next year. Given the company’s expected earnings growth, its potentially higher dividend and a recent buyback announcement, RTX is likely to rise.

For example, in its Jan. 25 earnings release Raytheon said it intends to buy back a least $2.5 billion of shares this year. That works out to 1.7% of its present market capitalization.  This gives RTX stock a total yield of 3.9% from its combined dividend and buyback yields. That makes it a good investment prospect for value investors.

Apple (AAPL)

Apple (AAPL) logo on an Apple store in Santa Monica, California.

Source: View Apart / Shutterstock.com

Market Cap: $2.8 trillion

Apple has made four quarterly dividend payments at 22 cents. The last one was declared on Jan. 27, and it’s due to make another quarterly announcement by the end of April.

Apple can clearly afford to increase the dividend given its huge free cash flow (FCF) generation. FCF is the cash flow left over after all spending and expenses that can pay for dividends, dividend increases and continuing share buybacks.

For example, Apple produced $44.16 billion in FCF during Q4. Its dividend expenses were just $3.73 billion, as can be seen in its Cash Flow statements on page three of its latest quarterly financials. So it has plenty of room to make another annual increase.

Assuming Apple increases its dividend to 24 cents quarterly, up from 22 cents, the annual dividend rate is 96 cents annually. That would give AAPL stock an annualized yield of 0.56% going forward.

Most of the FCF it produces is spent on buybacks. In a previous article, I pointed out that Apple is also likely to raise its buyback authority at the end of the month or even earlier.

If these two announcements are made at the end of the month, expect to see AAPL stock move even higher.

Chubb Limited (CB)

overhead shot of hands on a white keyboard

Source: Shutterstock

Market Cap: $91.2 billion

Chubb, the large insurance company, has paid 80 cents per quarter for the last four quarters. It’s due to hike the dividend around May 20 or so. The dividend is likely to rise by 3 cents, bringing it to 83 cents or $3.32 annually. That will give CB stock an annual yield of 1.55% or higher at today’s price of $214.05.

Chubb is fairly cheap at a forward price-to-earnings (P/E) multiple of 14.2x for this year and 13.1 times next year’s forecast earnings. The company can certainly afford to pay a higher rate. In the last quarter ending Dec. 31, it made $2.6 billion in cash flow from operations, but its dividend payments cost just $345 million. On top of that Chubb bought back $920 million of its shares.

So the stock is cheap, the company is shareholder-oriented and the dividend is likely to rise. That is a winning formula for most value investors.

Marathon Oil and Gas (MRO)

marathon oil (MRO stock) logo on a screen

Source: Casimiro PT / Shutterstock.com

Market Cap: $17.9 billion

Marathon has been raising its quarterly dividends by 1 cent per quarter and will likely keep on doing so. Its next dividend announcement will be at the of April and shareholders can likely expect a hike. As you might suspect, this is basically because the price of oil is rising. It is likely producing well over the level of cash flow that the company made even last quarter.

Right now the company is paying 7 cents per quarter, up from 6 cents in the prior quarter and 5 cents before that, and 3 cents a year ago. This progression leads one to believe it could rise to 8 cents at the end of April, putting it at an annual rate of 32 cents. That will give MRO stock an annualized yield of 1.3% at $24.43 per share.

Up until Q4 of 2015, it had been paying a rate of 21 cents per quarter. It’s possible that management is trying to build back up close to that level.

As it stands, MRO stock trades on a forward P/E multiple of just 9 times this year and (assuming a lower oil price next year) 9.4 times for 2023. Its FCF in Q4 was $898 million. That works out to $3.6 billion annually. That is more than its buybacks of $3.1 billion and also the cost of its dividends of about $205 million.

This is a value stock with growing dividends and a robust buyback program. When the next dividend is announced, MRO stock will look attractive to value investors.

Devon Energy (DVN)

The logo for Devon Energy (DVN) is displayed on a sign outside an office.

Source: Jeff Whyte / Shutterstock.com

Market Cap: $40 billion

Devon Energy paid a $1 per share fixed and variable quarterly dividend last quarter. This puts it on a $4.00 annual run rate. At today’s price of $58.13, that gives DVN stock a 6.88% dividend yield.

The fixed portion of the $1.00 dividend was 16 cents and the variable portion was 84 cents. This includes an increase of the fixed component by 45% to 16 cents quarterly or 64 cents annually.

The variable portion is calculated as 50% of quarterly free cash flow, after deducting the fixed dividend slice. My estimate is that the total dividend could rise to $4.68 annually starting with the Q1 announcement. This declaration will likely be made on or before May 2 when Devon announces its Q1 earnings.

If my estimate is correct, that works out to a quarterly dividend of $1.17. At the annual $4.68 rate, the stock would have a yield of 8.05%, which is likely too high. This could push DVN stock higher by at least 17% or more.

All eyes will be on the company when it announces its quarterly earnings and fixed and variable dividends. Value investors will find this stock attractive if the company keeps raising its dividends as expected.

Dividend Stocks: Chesapeake Energy (CHK)

Chesapeake Energy (CHK) logo displayed on phone with American flag in background

Source: IgorGolovniov / Shutterstock.com

Market Cap: $11.7 billion

As the last of our main dividend stocks, Chesapeake Energy’s dividend also has a base and variable component. The latter is 50% of free cash flow, after base dividends. Last quarter CHK paid 43.75 cents in a base dividend and $1.33 in variable dividends. That works out to an annual rate of $1.75 in base and $5.32 in variable dividends, or $7.07 annually. That gives CHK stock an annual yield of 7.85%.

However, Chesapeake recently said its base dividend will rise to 50 cents quarterly or $2.00 annually. This gives CHK stock a base yield of 2.22% ($2.00/$90.00).

I recently estimated that the variable dividend could rise to $8.43 annually, up from $5.32 annually. That is based on $2 billion in FCF and after the 50% reduction, $1 billion for the variable dividend. With less than 120 million shares outstanding, that works out to about $8.43 per share annually. So the total fixed and variable dividend will be $10.43 per share.

That brings the annual yield to 11.4%. That’s too high. As a result, CHK stock will rise significantly. Once the dividend is announced in early May, CHK stock could move higher if the variable portion is significantly higher due to higher oil prices.

Likely to Soon Hike Their Dividends: Oracle Corp (ORCL)

A photo of an Oracle (ORCL stock) sign outside a building.

Source: Jer123 / Shutterstock.com

Market Cap: $218.8 billion

Oracle Corp (NYSE:ORCL) has now paid dividends of 32 cents per quarter for the last five quarters. The latest announcement was made on March 10. Now it’s possible that the company could raise the dividend this next quarter, or after the eighth quarterly payment at the same rate. So it’s possible the company could raise its dividend again after the next three dividend payments or earlier.

Certainly, the company can afford to do so earlier than after eight quarters. For example, in its last quarter ending in February 2022, Oracle produced $2.744 billion in free cash flow. However, its dividend payment was just $855 million. So there is plenty of room for a dividend increase.

Microsoft Corp (MSFT)

Image of corporate building with Microsoft (MSFT) logo above the entrance.

Source: NYCStock / Shutterstock.com

Market Cap: $2.25 trillion

Microsoft (NASDAQ:MSFT) has now made three dividend announcements at 62 cents, as of March 14. Microsoft almost always hikes its dividend per share after the fourth dividend payment. So after this upcoming dividend in June, analysts will start to price in another per share raise.

The last dividend raise was 10.7%. This implies the next dividend, probably in mid-September, will rise to 69 or 70 cents. That brings it an annual rate of $2.80 or 0.9% at its price today of $300.21. Expect to see MSFT stock rise as a result. This makes it one of the worthwhile dividend stocks.

Caterpillar Corp (CAT)

stocks to buy

Source: Shutterstock

Market Cap: $115.7 billion

Caterpillar (NYSE:CAT) is due to announce its fourth dividend at $1.11 in mid-April. After that, analysts will begin pricing in a dividend increase. Assuming it rises to $1.20 in early June, that gives the stock an annual dividend rate of $4.80. Assuming there is no recession on the horizon, Cat stock could get a nice boost as one of the dividend stocks that raises its dividend rate.

On the date of publication, Mark Hake did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

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