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A salary raise isn't just about the numbers on your paycheck; it's a recognition of your hard work and a sign of appreciation from your employer. And when that raise comes in, it's a great feeling indeed.
If someone is getting promoted or changing employers, the salary bump can potentially be significant. However, in the absence of these milestones, the average annual pay rise is typically correlated with inflation in the specific country. For example, in the United States, the average salary increase in 2023 was around 4%, while in Japan it was close to 3.7%. For emerging economies like India and China, it was between 6-8%.
Often, it is seen that the average pay raise barely beats inflation, making it difficult to maintain or elevate one's lifestyle.
The financial markets are an excellent source of income, and as income investors, we tap into this tremendous potential for our financial stability. The amount of money global corporations spend on dividend payments grows every year, making this a terrific and underappreciated form of passive income.
When companies raise their dividends, it is a sign that their business execution is going well. Let us now look at two picks that just delivered double-digit distribution raises while still trading at bargain valuations.
Pick 1: WES - Yield 9.7%
Western Midstream (WES) is an American midstream corporation that owns and operates an extensive network of pipeline infrastructure, gathering systems, and processing and treating facilities. 49% of WES is owned by Warren Buffett-backed Occidental Petroleum (OXY) and a significant portion of the midstream firm’s output and revenues are attributable to production owned or controlled by OXY. This puts the two in a rather symbiotic relationship.
WES recently issued a 52% raise to its quarterly dividend, and its $3.5/share annual payment for FY 2024 calculates to a 9.7% yield. Being part of the Russell 3000 index and having an investment-grade balance sheet, WES stands out as the cheapest and highest-yielding midstream MLP. Prospects for shareholder returns are strong based on the guidance for FY 2024. Management projects $2.2-2.4 billion in adjusted EBITDA and between $1.05-1.25 billion in Free Cash Flow. These numbers adequately support the company’s debt reduction plans to achieve a 3x leverage ratio by the end of the fiscal year.
Pick 2: THQ - Yield 11.1%
As baby boomers age and increasingly turn 65, America is experiencing the biggest wave of retirements in U.S. history. Experts project that the largest volume of retirements will take place from 2025 to 2030.
The older population typically spends more on healthcare than any other age group, and America’s aging population bodes well for this industry. Source
Health System Tracker
abrdn Healthcare Opportunities Fund (THQ) is a Closed-End Fund diversified across the healthcare industry, with a focus on U.S-based corporations. Source
THQ March 2024 Fact Sheet
THQ has maintained its distribution level since its inception in 2014. In February, the CEF issued a 60% raise to its monthly distribution, and its $0.18/share monthly payment calculates to an 11.1% yield. The CEF trades at an 8% discount to NAV, making it a solid bargain to scoop the high yield.
Conclusion
Just as receiving a salary raise during your working years acknowledges your hard work and helps you keep pace with inflation, obtaining dividend raises in retirement is equally crucial. Dividend investing allows you to leverage the efforts of millions of workers as companies distribute a portion of their profits to shareholders. As these companies consistently increase their dividends, your investment income grows, serving as a reliable source of income amidst inflationary pressures.
At High Dividend Opportunities, we seek diversified exposure to 45+ income-paying securities and aim to reinvest at least 25% of our dividends to ensure portfolio income growth over time. This is how we use the markets to stay ahead of inflationary pressures and pay for our retirement.
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