Many investors pick stocks that will give them a strong dividend yield. With some uncertainty in the future of interest rates, finding the right income investment will be extremely important. Here are just a few options for investors looking to capitalize on strong dividend yields.
Payment processing tied to employment numbers
One company with a strong dividend yield is Automatic Data Processing (NASDAQ:ADP). ADP is a payroll processing company with a 2.5% dividend yield.
The company has consistently raised its dividend per share for the last 10 years. In the last three years alone, ADP has increased its quarterly cash dividend by 26%. Consistent dividend increases are very positive signs for income investors.
Because it is tied directly to the state of employment in the country, ADP will see growth potential as job numbers improve. Earnings per share have increased steadily for the last four quarters as job numbers have seen growth. In Q3 of this year, the company delivered a year-over-year growth rate of nearly 9%.
The rest of this fiscal year will likely bring solid growth, as well. Analysts are expecting 7% growth in earnings for the year. Automatic Data Processing (NASDAQ:ADP) has demonstrated itself as a company that returns value to investors. As income grows, so will the dividend. With a dividend yield of 2.5%, this is a great potential income stock for investors.
A company with an acquisition
International Business Machines Corp. (NYSE:IBM) has a dividend yield of 1.8%, which isn’t the highest, but this company has strong potential. IBM, like ADP, has a long history of continually increasing dividend payout rates.
The most important thing to note about International Business Machines Corp. (NYSE:IBM) is its recent announcement that it will be acquiring SoftLayer Technologies. This is the largest privately owned cloud-computing infrastructure company. The company comes with a hefty purchase price of $2 billion, but it gives IBM an opportunity to compete against Amazon.com, Inc. (NASDAQ:AMZN) in the cloud-computing space.
International Business Machines Corp. (NYSE:IBM) management said that in the next two years alone, this acquisition will add roughly $3 billion to the company’s cloud-computing revenue. This acquisition will also push the company’s earnings per share higher towards $20 – its goal for 2015.
As the company sees higher growth in the future, investors can look for a continued increase in dividend payout rates.
The company with a comeback
Microsoft Corporation (NASDAQ:MSFT) has the highest dividend yield of these three at 2.6%. Microsoft has had a few rough patches recently, but it has consistently increased its quarterly dividend since 2005. This is an important and common attribute for income investors.
Microsoft Corporation (NASDAQ:MSFT)’s launch of Windows 8 didn’t reach the level of sales the company was hoping for. Its radical change in user interface could be one of the issues behind less than expected sales. There is an update coming later this year that Microsoft says will make using Windows 8 much easier. Also, early next year the company will no longer provide support for Windows XP, forcing any current users to upgrade. This could drive continued revenue to Microsoft.
Microsoft’s Surface tablet represents only 1.8% of the tablet market share, but has potential to grow. Apple’s iPad is still the market leader with 39% but as more companies enter the market with tablets, there is opportunity to steal away market share.
Microsoft Corporation (NASDAQ:MSFT) also announced the release of its new gaming platform Xbox One. This new platform – which will be released in November – runs solely online and allows users to link, download, and stream games easily. It is too early to tell how sales will be for this product, but there are high hopes on Microsoft’s end.
While the company has had challenges with the decline of the PC, it is making concentrated efforts to continue to grow the company and bring higher revenues. These are great attributes for investment opportunities.
Final thoughts
When searching for the right income investment, it is important to look at the history of dividend increases. Each of these three companies has a strong history of returning value to investors via dividend growth. Also, these three companies are making concentrated efforts to grow and expand their operations. Investors should seriously consider these for future dividend income.
Austin Higgins has no position in any stocks mentioned. The Motley Fool recommends Automatic Data Processing. The Motley Fool owns shares of International Business Machines Corp. (NYSE:IBM) and Microsoft Corporation (NASDAQ:MSFT). Austin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Dividend Investment Opportunities originally appeared on Fool.com and is written by Austin Higgins.
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