When looking for the best dividend stocks, one can start with the Dividend Kings, a group of just 45 stocks that have all increased their dividends for at least 50 consecutive years. That level of dividend longevity makes these high-yield stocks highly appealing for dividend growth investors.
The Dividend Kings are also appealing for retirees because of their ability to withstand recessions. Only companies that can continue to raise their dividends through even the worst recessions become Dividend Kings.
This article will discuss three high-yield stocks that can raise dividends even in a recession and also have high yields above 4%.
| FRT | Federal Realty Investment Trust | $99.43 |
| NWN | Northwest Natural | $47.96 |
| CDUAF | Canadian Utilities | $30.42 |
Federal Realty Investment Trust (FRT)
Federal Realty (NYSE:FRT) is a real estate investment trust (REIT) — the only one on the Dividend Kings list. The trust owns and operates a portfolio of high-quality retail-based properties that are based in coastal communities in the U.S. Federal Realty seeks out markets with dense populations and high incomes that have limited building space, the combination of which tends to keep demand — and rental prices — high over time.
The trust operates just over 100 properties that collectively have 25 million rentable square feet, about 3,200 residential units and more than 3,000 tenants.
In the 2022 second quarter, funds from operations (FFO) per share came in at $1.65, up from $1.41 in the year-ago quarter. Total revenue increased 14% to $264.1 million year-over-year (YOY). Net income available for common shareholders stood at 75 cents, up from 57 cents in the year-ago period. During the quarter, Federal Realty continued record levels of leasing with 132 signed leases for 562,111 square feet of comparable space. The trust’s portfolio, during the quarter, was 92% occupied and 94.1% leased, up by 240 basis points and 140 basis points, respectively, YOY. Federal Realty also reported Q2 comparable property operating income growth of 8.2%.
Meanwhile, the company raised its 2022 earnings per share guidance to $2.50-$2.65 from $2.36-$2.56 and FFO per diluted share guidance to $6.10-$6.25 from $5.85-$6.05. The company also expects comparable property income growth to be in the range of 5.5% to 7%.
The stock yields 4.3%, and the company has also raised its dividend for 54 consecutive years, easily the best among publicly traded REITs.
Federal Realty’s expected dividend payout ratio for this year is just above 70%, which is fairly low for a REIT. It gives the dividend sufficient coverage even if funds from operation decline temporarily during a recession. The earnings stability Federal Realty has shown over the years — in good times and bad — is why the dividend payout should continue to rise during recessions.
Northwest Natural (NWN)
NW Natural (NYSE:NWN) was founded in 1859 and has grown from just a handful of customers to serving more than 760,000 today. The utility’s mission is to deliver natural gas to its customers in the Pacific Northwest and it has done that well, affording it the ability to raise its dividend for 66 consecutive years.
In the most recent quarter, the company reported net income of 5 cents compared to a net loss of 2 cents in the year-ago period. Revenue increased 30.9% to $194.96 million YOY. NW Natural added 10,200 natural gas meters over the past 12 months, equating to a 1.3% growth rate. Meanwhile, management reaffirmed its guidance for 2022. Earnings per share (EPS) is expected to come in between $2.45 and $2.65. The long-term EPS growth rate target is between 4% and 6%.
We are forecasting an average growth rate in the low-single-digits for the next five years as NW Natural pushes through approved pricing increases and continues to acquire customers at low-single-digit rates, as it did with the new Oregon rate case. NW Natural also has its water utilities business that will provide a small amount of growth. However, higher earnings will primarily come from customer and pricing growth while the company invests in its water business for longer-term growth.
NW Natural’s quality metrics have been very steady in the past decade. Indeed, 76% percent of its total assets are encumbered by debt, which is completely acceptable for a utility. Its interest coverage is fairly strong at 3.6x, so there are certainly no financing concerns moving forward. The payout ratio is around three-quarters of earnings, which is much-improved from previous years. Its obvious competitive advantage is in its monopoly in its service areas. This allowed it to perform extremely well during the Great Recession, as discretionary use of natural gas and water is very low.
The company has increased its dividend for 66 consecutive years. Shares currently yield 4%.
Canadian Utilities (CDUAF)
Canadian Utilities (OTCMKTS:CDUAF) has a market cap of $8 billion and is based in Canada. It is a diversified global energy infrastructure corporation delivering solutions in electricity, pipelines and liquid, and retail energy. The company prides itself on having Canada’s longest consecutive years of dividend increases, with a 50-year streak.
As a utility, the company has been sufficiently insulated from the economic slowdown over the course of the year. On July 28, 2022, Canadian Utilities reported its Q2 2022 results for the period ending June 30, 2022. Revenues for the quarter amounted to $726 million, 18.1% higher year-over-year. Meanwhile, EPS came in at 39 cents compared to a loss of 3 cents in Q1 2022. Higher revenues were mainly the result of rate relief provided to customers in 2021 in light of the Covid-19 global pandemic and, subsequently, the decision to maximize the collection of 2021 deferred revenues in 2022.
The growth in EPS was mainly due to inflation indexing on the rate base in Australia, the impact of the 2018-2019 General Tariff Application Compliance Filing decision, and the timing of operating costs in the Natural Gas Distribution business.
By benefiting from a stable business model, Canadian Utilities can slowly but progressively grow its earnings. The company consistently invests in new projects. And it benefits from the base rate increases, which grow around 3% to 4% annually. Last year, management had filed an application with the Alberta Utilities Commission to postpone Canadian Utilities’ electricity and natural gas distribution rate increases. The company expects to receive the deferred revenues in early 2022.
The appeal of investing in dividend stocks is their stability of earnings and dividends, even during recessions. The company’s current dividend yield is high at 4.4%.
On the date of publication, Bob Ciura 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.