Don’t buy into this trade panic—truth is, the market’s “tariff tantrum” is a goldmine for us contrarians. Today we’re going to mine it with two stocks whose dividends are skyrocketing—including one that’s pumped up its payout by 410% in the last decade alone.
Worrying Times Are When Fortunes Are Made
We contrarians know that times like these are when the mainstream crowd makes its biggest mistakes. And those blunders give us the chance to snag the strong, and growing, dividends they’ve tossed in a panic.
Like the first of two stocks we’re going to talk about today. From a first-level analysis, this Ireland-based company looks like it’ll get run over the next time “Tariff Man” holds a press conference.
But a clearheaded second-level read tells us it has plenty of strengths that will let it not only survive, but thrive—and grow its dividend as the trade war rages.
Tariff Play No. 1: A “Recession-Resistant” Stock With a Soaring Dividend
You likely use products made by Allegion PLC (NYSE:ALLE) and don’t even know it. If you’ve flipped a lock by Schlage, for example, you’ve used an Allegion product.
Before we get to what tariffs mean for Allegion, let me talk about what they mean for the overall economy, because that plays a role in our contrarian buy case here.
If you’ve been reading my articles over the last few weeks, you know I’ve talked about a couple studies showing that tariffs aren’t inflationary, despite what the pundits say. Why? Because they act as a drag on economic growth. That, in turn, brings lower rates.
And, yes, it also increases the risk of a recession—which is where Allegion has a hidden edge. Because no matter what the economy is doing, products like locks are essential—not the kind of things that fall victim to cost cutting.
Second, much as we hate to say it, tough times do lead to more property crime. That, in turn, is a boon for lock demand.
What’s more, if you’ve rented an Airbnb lately, you know that most homeowners are going with electronic “smart” locks that let them change access codes at will, and do away with the nuisance of regularly misplaced physical keys.
The result: skyrocketing smart-lock demand: recent figures from Astute Analytica say the market will grow at a 10.4% annualized clip through to 2033, when it will be a $16.5-billion business.
Supply Chain Can Shift With Tariffs
Now, to be sure, long-term China tariffs could be a headwind for Allegion. But Trump seems to be taking a more cautious approach, recently stating that he might give the country “a little reduction of tariffs” to get its help in selling TikTok.
Here, too, Allegion has an edge in the form of its large manufacturing footprint, which includes 13 facilities in the US. That lets it move more production to the US if it needs to. Heck, it gives the Irish company a level of flexibility that even many so-called “domestic” manufacturers, like carmakers General Motors (NYSE:GM) and Ford (NYSE:F), can only dream of.
Allegion’s Flexible Manufacturing Structure
Source: 2024 Production & Assembly Footprint
The stock returned 84% during Trump 1.0, and I’m expecting it to post another strong performance in the coming months, thanks to its global presence and “recession-resistant” business.
Now let’s talk dividends: Allegion yields just 1.5% today, but that meager figure hides the fact that its payout has shot up 410% in the last decade. More growth is assured thanks to Allegion’s low payout ratio—dividends accounted for just 28% of the last 12 months of free cash flow.
Allegion’s Dividend Is on Rails
Source: Income Calendar
Here’s something else that tells us ALLE is cheap: The stock trades at 19 times forward earnings, a nice discount on its five-year average of 24. That tells us investors have clearly mistaken Allegion for a tariff victim when, in fact, it has everything it needs to navigate the trade war. Let’s call them on their error.
Tariff Play No. 2: A Domestic Chipmaker Caught Up in Taiwan Troubles
Trump has been threatening Taiwan with tariffs for months, claiming the island “stole” America’s chip industry. No wonder shares of Taiwan Semiconductor Manufacturing (NYSE:TSM) are down some 12% since January 1.
TSMC has taken steps to try to soothe the administration, recently announcing a $100-billion investment in plants in the US, but the Trump administration is apparently still mulling tariffs, which is why, in this case, investors are right to sell the stock.
What they’re wrong to do, however, is let their “tariff terror” cause them to sell a chipmaker like Massachusetts-based Analog Devices (NASDAQ:ADI), which is down about 13% from the all-time high it hit in late February.
That’s because, as we’ll see in a second, the company is heavily slanted toward its home country—and it’s a picture of resilience on a lot of other fronts, too.
For one, its chips are everywhere, quietly humming along in things like automotive driver-assist systems (including self-driving Waymo taxis); military applications, including radar-defense systems; industrial sensors; and 4G and 5G cellular networks.
And in a world where new, game-changing tech seems to show up every day, ADI’s chips have staying power—about 50% of its revenue comes from products 10+ years old.
That’s stunning longevity for the fast-changing chip business, and it gives ADI a nice base while it devotes its ample R&D spend—$1.5 billion in fiscal 2024, or about 16% of its revenue—to new, cutting-edge chips.
Back to its supply chain: Like Allegion, ADI has a strong presence in the US, with much of its manufacturing happening here, while its international locations focus more on testing. And like Allegion, ADI can move more production to the US if it has to.
ADI’s Footprint Is Made for Our Trade-Wary Times
Source: analog.com
Also like Allegion, ADI has a humble dividend yield of just 1.9%, yet it more than makes up for that with strong payout growth—the dividend is up 148% in the last decade:
ADI’s Dividend Soars
Source: Income Calendar
Meantime, the company’s payout ratio sits at a sage 57% of its last 12 months of free cash flow. And as I mentioned, the stock sits well off its all-time high, thanks to this selloff. That’s a sweet entry point for us—and we’re happy to take it.
Disclosure: Brett Owens and Michael Foster are contrarian income investors who look for undervalued stocks/funds across the U.S. markets. Click here to learn how to profit from their strategies in the latest report, "7 Great Dividend Growth Stocks for a Secure Retirement."