Is 2024 the year of the dividend increase?

Key Points

• Lennar, Plains All American Pipeline, TD Synnex and Alamo Group raised dividends at double-digit rates in early January.
• Analysts like Morgan Stanley say a challenging stock market in 2024 could result in investors toward income-producing equities.
• Companies with recent dividend increases are often rewarded by institutional investors.

If you’ve been around while, you might remember the old commercial slogan for Almond Joy and Mounds candy bars: “Sometimes you feel like a nut, sometimes you don’t.” 

You could spin an admittedly less catchy version of that for investors: “Sometimes you feel like buying dividend stocks, sometimes you feel like buying bonds.”

Could 2024 be the year that investors turn back to dividend stocks in their quest for income?

Already this year, stocks including Lennar Corp. NYSE: LEN, Plains All American Pipeline L.P. NYSE: PAA, TD Synnex Corp NYSE: SNX and Alamo Group Inc. NYSE: ALG boosted their dividends at double-digit rates, and analysts believe more companies will also significantly increase their shareholder payouts. 

When it comes to income-generating investments, dividend stocks took a backseat to bonds in 2023. 

Dividend growers underperformed broad market in '23

One of the most popular dividend exchange-traded funds, the Vanguard Dividend Appreciation ETF NYSEACA: VIG underperformed the S&P 500 last year, although the reverse was true in 2022, as investors sought a safe haven from broad market declines.

But in 2023, growth-focused, non-dividend-paying techs like Nvidia Corp. NASDAQ: NVDA and Meta Platforms Inc. NASDAQ: META led the market, meaning income-generating stocks were less attractive.

So far in 2024, with the S&P 500 trading essentially flat and no discernable trend taking hold yet, the broad S&P 500 and the dividend-growth portion of the index are showing very similar returns. 

However, investors still sought less volatile instruments to offset some of the risk in stocks, and that’s where bonds played a role.

In particular, high-yield bonds soared in the later months of 2023. That made sense; as interest rates rose to the highest levels in more than two decades, 

Morgan Stanley: Investors seeking higher yield

So where does that leave income-seeking investors in 2024? Some analysts believe dividend stocks are poised for a rebound.

In a recent research note, Morgan Stanley analysts wrote, “Investors are seeking durable, higher yielding dividends as market volatility is expected to continue throughout the easing cycle.” 

In other words, if equity markets are uncertain and challenging this year, as many analysts expect, stocks with higher yields may be attractive to generate income while mitigating whipsaw action.

Companies with recent dividend increases tend to be rewarded by institutional investors, who take an analytic approach to balancing growth and income.  

After many companies slashed dividends in 2020, and then were cautious about increasing them in the face of a possible recession, they’re now confident enough to boost those payouts again. 

Double-digit dividend increases

For example, shares of Lennar stock are up 1.5% since it raised the dividend on January 9. The homebuilder also increased its share buyback program, offering a two-pronged approach to returning capital to shareholders.

It’s Lennar’s first dividend increase in two years. 

Plains All American Pipeline, as an energy transport master limited partnership, was already ensconced in a segment of energy stocks known for high shareholder payouts. Plains All American’s dividend yield is 8.1%. 

The company boosted its dividend on January 8. The stock is up 1.4% since then. 

Analysts see upside for companies boosting payouts

TD Synnex on January 9 declared a first-quarter dividend of 40 cents per share, a 14% increase over the prior quarter.

The mid-cap company helps enterprise customers integrate and optimize the various elements of increasingly sophisticated tech stacks. 

The stock is trading slightly lower since the dividend increase, but TD Synnex analyst forecasts show a consensus price target of $111, an upside of 6.58%.

Another double-digit dividend increase came from Alamo Group, which increased the shareholder payout to 26 cents a share, up 18.2% from the prior dividend of 22 cents per share.

Alamo shares are down since then, as the stock was under selling pressure along with the broader market. 

The Alamo Group analyst forecasts show a consensus view of  “buy,” with a price target of $207.67, an upside of 2.53%. That would put the stock above its closing price on January 2, the day the dividend increase was announced.