3 Companies That Just Raised Dividends; 2 to Buy, 1 to Avoid

Key Points

• Chesapeake Utilities raised its dividend by 7% and offers growth potential due to rising natural gas demand, particularly driven by data centers.
• RTX increased its dividend by nearly 8% and holds growth prospects due to its focus on innovative defense technologies.
• Paychex raised its dividend by 10%, but investors may find better entry points after there’s more certainty about tax policy.

In volatile markets, investors often seek the relative safety of dividend stocks. While stock prices can go up and down, there’s something to be said for owning a stock that pays you to own it. It’s even better when the company has a history of consistently raising its dividend.

Over time, the compounding effect of rising dividends combined with rising stock prices increases an investor’s total return. Investors who take a buy-and-hold approach to their stocks may not pay much attention to a stock’s short-term outlook.

But if you’re trying to find the right time to start a position, or add to an existing one, it’s important to consider more than just a stock’s dividend.

This article features three companies that recently announced dividend increases. Two of them offer investors a solid buying opportunity, and one, though it looks good right now, may offer a better entry point later this year.

Inevitability Supports Buying Chesapeake Energy Stock

Chesapeake Utilities Corp. NYSE: CPK is a diversified energy delivery company that distributes natural gas, propane, and electricity.

The company raised its dividend by approximately 7% in early May. That makes it 21 consecutive years of dividend increases, and with a payout ratio of around 43% based on next year’s estimates, future growth is likely.

However, what makes Chesapeake Utilities a Buy is the outlook for growth.

Natural gas prices are below the elevated levels of 2022 but continue to show strength. The opportunity is that natural gas prices are likely to continue moving higher as demand increases, specifically due to the demand for data centers.

CPK stock is trading within about 5% of its consensus price target of $126.50.

However, Wells Fargo & Co. recently increased its price target from $126 to $136. That would take the stock above its recent highs in April.

Let Uncertainty Be Your Friend with RTX Stock

Aerospace stocks have posted weaker-than-expected earnings due to concerns over tariffs and the defense budget. However, RTX NYSE: RTX was among the sector’s best.

The company beat on the top and bottom lines and raised its dividend nearly 8% (7.94%).

President Trump is talking about peace in the Middle East, which may have some investors concerned about the future of defense stocks.

However, RTX is all about the future of defense (i.e., drones and other unmanned equipment), which puts the company at the center of the new defense industry.

Analysts have a consensus Buy rating on RTX stock with a price target of $159.82.

That's a 17.9% upside in addition to the 2.01% dividend yield.

Investors are also getting RTX stock while its price-to-earnings (P/E) ratio is around 38x, which is a discount to its historical averages.

Paychex May Look Better in Another Quarter or Two

At first glance, there would seem to be a lot to like about Paychex Inc. NASDAQ: PAYX. The company provides payroll and human capital management solutions (i.e., human resources). Its primary target is small- to medium-sized businesses.

PAYX stock is up over 10% this year and over 24% in the last 12 months. Making the story more attractive, Paychex raised its dividend by 10% in early May. That puts the annualized three-year dividend growth at over 13%.

What’s not to like? In this case, it would be the company’s current stock price. At around $154 per share, it’s near the top of its 52-week range, and above the consensus price target of analysts tracked by MarketBeat.

Here’s reason to be enthusiastic: hiring should grow, particularly in the stock of small businesses served by Paychex. However, that’s dependent on the Trump tax bill making its way through Congress.

It seems likely, but will it happen in the timeframe investors seek (i.e., by the Fourth of July)? That's less certain. And it could send PAYX stock lower until there’s clarity.

To be clear, there’s no danger with the company’s dividend. But if you’re looking for some growth to go along with that income, there are better options. However, that could change if the Trump tax bill is delivered on schedule.