My Top Dividend Stock To Buy In June
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Fun fact: In 2023, trucking was responsible for moving about 13.1B tons of goods across the U.S., accounting for a whopping 64.7% of all transported goods by weight. Projections from the U.S. Department of Transportation show that this volume is expected to grow to around 19.3B tons by 2050.
While this represents a modest 1.45% compound annual growth rate, the takeaway is that trucking plays a crucial and continually expanding role in the transportation sector. Given this significant role, it’s worth looking at some of the key companies in the industry, like Old Dominion Freight Line (ODFL)—my top dividend stock for June.
Old Dominion is one of the leading trucking companies in the States, specializing in what’s referred to as less-than-truckload (LTL) shipping. Unlike full truckload shipping, which involves hauling a single shipment for one customer, LTL operations gather multiple shipments from multiple customers onto one truck. These goods are then routed through a network of service centers, where they may be transferred to other trucks with similar destinations.
With a sprawling network of 260 service centers that cover the entire continental U.S. (90% of which are owned by the company), Old Dominion not only benefits from its extensive infrastructure but also boasts an expansive real estate portfolio.
This far-reaching and well-managed freight network has allowed Old Dominion to dramatically expand its market share over the last two decades, growing from a modest 2.9% in 2002 to an impressive 11.8% in 2022.
Source: ODFL Investor Presentation
And the growth story doesn't end there. Since 2002, Old Dominion has grown its revenue by an average rate of nearly 12% per year. This substantial growth has led to a stronger bottom line with expanding margins and an aggressively growing dividend—both of which are extremely attractive to investors.
Source: ODFL Investor Presentation
At first glance, Old Dominion may not seem impressive in the dividend department due to its low starting yield of 0.6%. However, its undeniably delectable dividend growth rate of 35.7% is what truly sets it apart.
You'd be hard-pressed to find a higher dividend growth rate than that, and with the recent dip in share price (down 6.2% in the last month and 14.6% year-to-date), now might just be the perfect time to delve deeper into this dividend growth behemoth.
The company’s recent downturn can largely be blamed on its latest quarterly earnings report. Despite revenue coming in just below expectations—a $10 million miss out of $1.46 billion, not bad at all—the results were still decent, with revenue up by 1.2% year-over-year and earnings in-line with analysts' expectations.
However, there were some red flags. LTL tons, tonnage per day, and LTL shipments per day all experienced declines, as did the weight per shipment and the number of miles hauled.
In other words, there was a noticeable dip in volume across the board, indicating a potential decrease in demand for freight services. This obviously isn't great news for the company, which is why the share price has dropped so much.
Yet, despite these short-term setbacks, Old Dominion’s growing market position, consistent revenue growth, expanding profitability, and impressive dividend growth rate still make it an attractive prospect for long-term investors. If you have the benefit of time on your side, and can stomach some short-term fluctuations, this might be a great dividend growth stock to consider for your portfolio.
With that said, I want to hear from you: Which discounted stocks do you have your eye on for this upcoming month? Write to me here and let me know.
And a big thank you to all of the readers who responded to last week's newsletter! You can read some of the responses down below in the "Hot Takes" section. 👇
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IN MY PORTFOLIO 📈
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ICYMI 🎥
3 Deeply DISCOUNTED Dividend Stocks To Buy In June
In this video, we’re talking about 3 stocks that look like particularly great pickups for your portfolio as we jump into June.
CAREFULLY CURATED 🔍
📺 The $12 Trillion Money Machine - This video is a lengthy one at almost 40 minutes long, but is well worth the watch. It tells the incredibly interesting story of Visa and its ascent to global dominance in the world of finance and commerce.
🎧 The Inner Scorecard - If you enjoyed the podcast I shared last week, then you'll really love this one. I've got another fantastic interview with Mohnish Pabrai for you. This time, it's from the We Study Billionaires podcast.
📚 Investing In An Age of Disruption - Investors continuously underestimate the speed at which disruption transforms business and society. This article explains how you can keep up with the times and succeed in a rapidly changing market while still maintaining a long-term investment strategy.
SINCE YOU ASKED 💬
"Suppose a person has considerably more invested in the market already but the annual dividend is only $7,000. I want to preserve my savings for future generations while having dividends for bills. Where does one start to get this portfolio to bring in a more lucrative dividend income?"
- @rejeanorscott1555 | YouTube
When it comes to ramping up your dividend income, there are several different levers you can pull.
First, you might consider investing in higher yielding stocks, which will give your dividend income an immediate boost. However, I would not just go out and buy the highest yielding stocks/ETFs you can find. Many high-yield investments are actually yield traps. You can learn more about those and how to identify/avoid them here.
Second, reinvesting your dividends is essential for increasing your dividend income over time. By using the dividends you receive to purchase more shares of the stocks in your portfolio, you effectively compound your returns. This is a key component to creating the highly-coveted dividend snowball effect, and over the years, this will have a significant impact on the growth of your dividend income.
Last but not least, consider adding stocks with high dividend growth rates to your portfolio. These are companies that consistently and aggressively increase their dividend payments year after year. While their current dividend yield may not be as high as other investments, their ability to grow dividends at a rapid rate can lead to substantial increases in income over the long-term. With that said, dividend growth stocks require time and patience, as the full benefits of dividend growth only materialize after a number years.
Have a question? Ask me here to see it featured in an upcoming newsletter.
HOT TAKES 🔥
Last week, I asked readers which stocks of theirs had the highest free cash flow yield. Here are some of the responses:
Clay said: VLO (11.98%), VICI (9.04%), XOM (7.86%), PSX (7.80%), IBM (7.50%), PRU (6.99%)
Darake said: My best FCF Yield (FWD) comes in at 17.27% for ASC - Ardmore Shipping. Unfortunately, it looks like Seeking Alpha only publishes this number for dividend stocks, so I couldn't check some of my growth stocks. I was surprised the FCF Yield is so low for (perceived) cash printing machines like Visa, Microsoft, & Meta.
Mark said: Looks like T (17.46%), ET (13.02%), MO (11.32%), and BMY (14.57%) are my winners!
Kevin said: The companies with the highest yields are BTI and BMY (both above 14%).
LAST WORD 👋
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