These Companies Just Hiked Their Dividends — Should You Buy?

Dividend stocks have always been an investor favorite, as they provide stable income and diversification benefits. These stocks also tend to hedge investors' portfolios during a market downturn or periods of uncertainty as they provide periodic payouts. 

While the recent rally of stocks has sparked investor enthusiasm, certain analysts predict the current positive market trend to be a "bull trap," as UBS Managing Partner Michael Riesner said the "current breakouts is the setup for a classic bull trap instead of believing in the start of a larger breakout campaign."

Amid rising geopolitical tensions and worrying economic headwinds, investing in stable dividend-paying stocks can be fruitful. Several notable large-cap companies recently hiked their dividends, reflecting their sound fundamentals and promising growth potential. Take a closer look. 

Enbridge

Canada-based Enbridge Inc. ENB is the largest natural gas utility company by volume in North America, as well as one of the major suppliers of crude oil. The company, which is the third largest in North America in terms of customer count, transports approximately 30% of the crude oil produced on the continent. 

Enbridge pays $2.63 (CA$3.55) in dividends annually, yielding 7.43% on the current price. The stellar dividend yield on Enbridge is slated to rise further as the company hiked its annual dividends by 3% to $2.76 (CA$3.66) beginning March 1, 2024. This translates to an over 7.7% yield on the current stock price. This marks the 29th consecutive annual dividend hike announced by Enbridge, consolidating its position as a Dividend Aristocrat. 

The company has strong financials to maintain its dividend payouts, as it predicts its cash flow will grow in the near term as well. 

"We remain committed to annual dividend growth consistent with our medium-term distributable cash flow outlook and keeping our dividend payout ratio within 60 to 70% of DCF [discounted cash flow]," Enbridge President and CEO Greg Ebel said in a press release.  

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General Motors

General Motors Co. GM, one of the top three car manufacturers in the U.S., announced a dividend hike and managerial revamp late last month to restructure its operations in the face of growing competition. 

On Nov. 29, GM announced a 33% rise in dividend payouts beginning in January. The company currently pays $0.36 in dividends annually, yielding 1.01% on its current price. Effective next year, General Motors' annual dividend payout will stand at $0.48, yielding over 1.3%. 

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Apart from this, General Motors unveiled a $10 billion accelerated share repurchase program starting next year to boost the return of capital to shareholders. The company plans to reduce its capital spending and delay new products and investments to strengthen its balance sheet and finance shareholder returns. 

The markets have been optimistic about GM since the strategy was unveiled, as the stock has risen by 29% over the past month.

CVS Health

CVS Health Corp. CVS, one of the largest health solutions companies in the U.S., announced a 10% hike in its dividend payouts on Dec. 5. CVS currently pays $2.66 in dividends annually, yielding 3.4% on the current price.

"By broadening our portfolio of integrated products and services, we expect to create a path to sustainable, profitable growth," CVS Health interim Chief Financial Officer Tom Cowhey said. "Our powerful cash generation capabilities will support our strategic goals, prudent capital deployment, and attractive return profile while also providing opportunities for meaningful long-term outperformance."

The company foresees a substantial cash availability of $40 billion to $50 billion for deployment from 2024 to 2026, with an estimated annual average free cash flow of $7 billion. The intended allocation includes 35% for capital expenditures, 25% for dividends and the remaining 40% earmarked for flexible deployment such as share repurchases.

Shares of CVS have risen by over 13% over the past month and over 5.5% over the past five days. This momentum is expected to continue, as TD Cowen has an Outperform rating on CVS stock with a price target of $99, indicating a nearly 26% potential upside. Cantor Fitzgerald has an Overweight on the stock with a price target of $87, reflecting an over 10% potential upside. 

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