Expert Economists Highlight Dividend Stocks for Investors

A group of expert economists are raising concerns about the possibility of an upcoming recession, although they refrain from predicting an exact timeline for its occurrence. Their analysis suggests that multiple interest rate hikes could gradually impact the housing market, leading to a slowdown in the economy as mortgage costs rise. Additionally, the shift towards remote work may result in decreased demand for office spaces, further affecting various industries. Despite the lack of a specific timeframe, these economists suggest that a recession is likely to happen sometime between later 2023 and 2025.

While economic indicators such as GDP, CPI, PPI, and PMI are widely used to predict market trends, contrarian investors prioritize dividends and growth. These investors seek out stocks that offer stable payouts and potential price appreciation regardless of the broader economic conditions. These “dividend magnets” are considered recession-resistant due to their ability to generate consistent returns.

One notable example is Microsoft (MSFT), a technology giant with a 17-year-old dividend history. During the Great Recession, Microsoft initiated an aggressive dividend strategy, resulting in substantial dividend growth and a significant increase in share prices. This correlation between dividend growth and share-price growth is referred to as the “dividend magnet” phenomenon. It is characterized by three key elements:

1. Growing Payouts = Growing Yields: When a stock raises its dividend, the yield on the original investment also increases. Over time, even modest dividends can escalate into high-single-digit or double-digit payouts.
2. Growing Payouts Beat Inflation: Inflation erodes the value of money, and stagnant dividends can lead to a decline in purchasing power. Investors seek growing dividends to stay ahead of inflation and maintain their income levels.
3. Growing Payouts Pull Share Prices Higher: Companies that demonstrate substantial dividend increases signal robust financial performance, attracting investors and driving share prices upward.

In light of these principles, investors are advised to consider stocks with a history of rapid dividend growth. Several companies traditionally announce dividend hikes during the third quarter, which has recently begun. Notable options include Host Hotels & Resorts (HST), Ford (F), Howmet Aerospace (HWM), and GeoPark (GPRK).

Host Hotels & Resorts (HST), a real estate investment trust specializing in hotel properties, has made significant strides in dividend growth following the temporary suspension of its dividend during the COVID-19 pandemic. The company is projected to announce its next dividend increase in early August.

Ford (F), the well-known automobile manufacturer, suspended its dividend during the pandemic but has since reinstated it at pre-COVID levels. The company is expected to announce any changes to its dividend in late July.

Howmet Aerospace (HWM), which produces advanced engineered products for the aerospace and transportation industries, has seen explosive dividend growth since its spinoff from Arconic. The company is projected to announce its next dividend increase in late September.

GeoPark (GPRK), a Latin American oil-and-gas exploration-and-production company, has experienced remarkable dividend growth over the past three years. While future increases may depend on factors such as oil prices, the company’s commitment to returning a portion of free cash flow to shareholders through dividends is worth monitoring. GeoPark is expected to announce any changes to its dividend in early August.

Investors are advised to conduct thorough research and consider their risk tolerance before making any investment decisions. While these dividend stocks offer potential rewards, it is important to remember that investing involves inherent risks, and market conditions can be unpredictable.