This is truly a golden era for dividend-hungry investors. Payouts have been growing at an impressive pace, and many companies have the ability to boost their dividends further, as I noted recently.
Indeed, a variety of companies that have historically sought to boost their dividends at a moderate annual pace in the past are now embarking on much more aggressive dividend hikes. These 12 companies, for example, have boosted their dividend at least 100%, on average, over the past three years.
Source: Thomson Reuters
Though the dividend yields for many of these stocks remain quite low, a continued string of aggressive dividend hikes would quickly push them into respectable territory.
Still, some investors prefer to seek out stocks that possess robust dividend growth rates and already sport decent yields above 3%.
Source: Thomson Reuters
I remain a big fan of Freeport-McMoRan Copper & Gold Inc. (NYSE:FCX), which appears poised for robust cash flow growth in coming years. And that should help power the dividend nicely higher.
To be sure, some of these companies have already boosted their dividend up to levels deemed appropriate, and are unlikely to keep boosting payouts at a fast pace. Wall Street analysts try to glean dividend growth strategies at the companies they follow, and based on their estimates, Bloomberg has identified stocks that are expected to see their dividend grow at least 15% over the next three years. (This is only a partial list, based only on companies going ex-dividend in September.)
Source: Bloomberg
Yet investors can also make their own determination of what kind of dividend growth a company is capable of by looking at payout ratios. Any company that is dedicating a minority portion of its net income to dividends may seek to boost the amount of funds down the road. For example, if a company has a 30% payout ratio and aimed to boost the payout ratio to 60%, then the dividend would double. In effect, we can identify companies that hit the trifecta of strong historical dividend growth rates, decent current yields, and low payout ratios. Of all the companies in the S&P 500 and S&P 400, these dozen companies score highest using these criteria.
Source: Thomson Reuters
Banking stocks such as JPMorgan Chase & Co. (NYSE:JPM), Wells Fargo & Co (NYSE:WFC) and Fifth Third Bancorp (NASDAQ:FITB), are logical candidates, as their capital bases have moved up to levels that satisfy regulators. That sets the stage for higher payout ratios down the road. (Citigroup Inc. (NYSE:C) doesn’t make this select group because its dividend is tiny, but the banking giant appears poised for robust dividend payments in the years ahead.)
It’s notable that Intel Corporation (NASDAQ:INTC) makes this group. The company’s current dividend yield of 3.8% is already quite impressive, but there’s ample room for dividend growth as the company throttles back on a massive three-year $60 billion capital spending plan to support the development of many new chips. Earmarking less money for capital spending will leave a lot more available for dividends (and share buybacks).
Shares of Intel Corporation (NASDAQ:INTC) have recently been rising as the company provided a multi-year roadmap for its new chips that left analysts impressed. Meanwhile, this remains as a solid value stock, trading for around 12 times projected 2013 profits. The fact that robust share buybacks are part of the equation (1.4 billion shares have already been retired since 2004) provides additional downside support.
Glass panel maker Corning Incorporated (NYSE:GLW) is also poised for robust dividend growth. The payout is on a path to rise from $0.23 a share in 2011 and $0.32 a share in 2012 to roughly $0.50 a share by 2015, according to consensus forecasts. The fact that Corning Incorporated (NYSE:GLW) is in the midst of a $2 billion share buyback program means the dividend can rise even more once the buyback plan is completed.
Risks to Consider: The main factor inhibiting dividend growth at these firms is the share buyback programs. Yet with share prices moving ever higher, these companies may decide that a great focus on the dividend makes more sense in the years ahead.
Action To Take–> With a path to nicely higher dividends down the road, these stocks sport solid current yields but will generate even better yields in the future. That makes these great buy-and-hold candidates.
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– David Sterman
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