Dividend investing can be deceptively tricky. Yields are typically the go-to metric for income investors looking for their new long-term money-maker. However, some companies pay out fluctuating dividends, making them unreliable in the long run.
Some investors mitigate this issue by investing in Dividend Kings and Aristocrats, companies with consistent increases across impressive time horizons. This strategy is perfectly reasonable to generate passive income from a portfolio.
Other investors, meanwhile, tend to be more adventurous with their money. They tend to seek out high-yielding stocks, ride out the wave, and exit with as much profit as possible.
Further yet, others might scour the market for companies that had just started paying dividends, getting in on the ground floor before stock prices and dividend payouts start moving up. While the strategy carries some risk, there’s no denying the appeal of buying a future dividend superstar before anybody else.
So, let’s take a look at some of these potential additions to your long-term portfolio.
Methodology
To get the companies on this list, I screened for stocks that either paid dividends or enacted a dividend policy for the first time within the last 12 months. Afterward, I reviewed each one to see what it offered.
Of course, paying dividends is different from having the ability to pay dividends consistently, so I then added in the following criteria to get companies with the best prospects:
- Positive net income growth year-over-year and
- A dividend payout ratio not exceeding 30%
The results are in: Three companies arranged based on yields from lowest to highest.
T-Mobile US (TMUS)
T-Mobile is a well-known wireless network operator in the United States. The company provides wireless telecom services, including data communications, text messaging, and VOIP calls. Like most telecom service providers, it offers complementary services like distributing smartphones and other smart devices.
Late in 2023, the company unveiled a new dividend policy with a quarterly payout scheme. Dividends are 65 cents a share per quarter, or $2.60 annually. Based on current prices, this represents a 1.61% yield.
A few things excite me about TMUS’s new dividend policy.
First, the company expects dividends to increase by 10% annually. While the Dividend Aristocrat status is quite far off, it wouldn’t be surprising if the company was swinging for the title.
Secondly, based on market cap, T-Mobile is currently the biggest telecom company in the US (and second in the world).
Third, T-Mobile’s FY’23 results were quite impressive. Total revenues may have fallen by 1.3%, but net income grew by a strong 221.1% YOY. Diluted EPS also saw a 236.4% bump to $6.93. It can increase its dividends, especially with its cozy 9.04% payout ratio based on three out of four quarterly payouts.
Based on these factors, I’d say that income investors holding TMUS stock may be looking at significant growth in the future.
OppFi (OPFI)
Opportunity Financial, or OppFI, is an American fintech company that aims to "extend credit access to everyday Americans.”
OppFi’s fully digital financial solutions use AI-powered algorithms to help customers with stable incomes find the best credit options that fit their financial needs. Indeed, with over 250k applications a month, OppFi's automation platform makes fully automated lending decisions for 71.9% of all applications. This is just one way the company significantly reduces the red tape on loans, making them accessible to individuals that traditional banks consider “high-risk borrowers.”
OppFi, in its current form, went public back in 2021. So far, the company has been doing well, with 2023 being its ninth consecutive year in the green. Even more impressive, 2023’s YOY net income growth reached 1,082%.
In line with its continued successes and as the first steps to consistently improve value for shareholders, OppFi has announced a special dividend of 12-cents per share, payable on May 1, 2024. Assuming 12-cents is it's payout for the trailing twelve months, it would translate to a decent 4.17% yield and a 23.5% payout ratio based on FY'23s adjusted EPS of 51 cents.
Additionally, the company has initiated a 3-year $20 million share repurchase program to further improve shareholder value. Judging from OppFI certainly has enough cashflow to pay a consistent dividend - the only question is, will they?
Jiayin Group (JFIN)
Jiayin Group is a Chinese fintech company fostering connections between banking institutions, underserved communities, and individuals. It also has a business-to-business segment that provides risk management and assessment for other banks.
As of the time of writing, JFIN has only paid dividends twice, once in August 2023 and the other in January 2024. These payouts amount to 80 cents USD, which reflects a 12.76% yield.
According to the company’s newly minted dividend policy, it will “continue to declare and distribute a recurring cash dividend semi-annually,” so we can expect another payout in July this year. The good news doesn’t end there, though. Jiayin also said it will increase dividends if “market conditions improve.”
The company’s dividend payout ratio is also at a low 25% based on 2022’s net income. Meanwhile, 2023’s year-end report saw a 9.9% bottom-line increase. This comes with several notable improvements across key metrics like repeat borrowing rate, loan facilitation volume, income from operations, and net revenue.
If Jiayin makes good on its promise of increasing dividends based on improving performance—and I have no reason to suspect otherwise—then income investors are in for a good time.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
