Stocks that hike their dividend payments are valuable because unlike stagnant dividend stocks, investors can collect more money from these types of investments over time. For example, if a dividend payment were to rise by 5% every year, then the amount of dividend income you would receive would double in 14 years. It gives investors an incentive to buy and hold.
One stock that recently raised its dividend was logistics company United Parcel Service (NYSE:UPS). Last month, it announced it would be raising its dividend by 6.6%, up to $1.62 per share. With the increase, the stock's yield is now an impressive 3.4%. By comparison, the average S&P 500 stock pays a yield of around just 1.7%.
Not only is UPS rewarding its shareholders via dividends, but it also announced plans to buy back $5 billion worth of stock. By buying its own shares back, UPS can help improve its earnings multiples and make its metrics look better, while at the same time helping to support the share price. That way, investors can benefit from a potentially rising stock price on top of the dividend income that it can generate.
Although the company is coming off a tough quarter in Q4 where sales fell 2.7%, the company's adjusted diluted EPS was up slightly, 0.8% higher than in the year-ago quarter. With a payout ratio of less than 50%, UPS is in great shape to continue paying and increasing its dividend.
For long-term investors, the stock remains a good buy, even if in the short term, the economic conditions don't look so great.
