Rising profitability and swelling cash flows have enabled an increasing number of companies to boost their dividends substantially. In an environment characterized by low yields and reduced opportunities for business growth, some companies have pursued shareholder value-boosting capital deployment policies, channeling more funds into dividends and share buybacks. Among companies with strong operational performance, there are some that could continue to boost dividends at above-average rates.
A select few
A small group of companies has a potential to double dividends within a relatively short time, including a few that have the preconditions to double them in three years. Below is a closer look at four dividend-paying companies with yields exceeding 2% that have basic preconditions to double dividend payouts within three years; investors searching for a repeatable, market-beating strategy can continue reading here.
Qualcomm
QUALCOMM, Inc. (NASDAQ:QCOM), the world’s third largest chipmaker, is one of the companies that could deliver double its current level of payouts within three years. The company’s balance sheet is characterized by absence of long-term debt and cash and short-term investments constituting some 28% of the company’s total assets. (Cash and marketable securities are 64% of total assets.) QUALCOMM, Inc. (NASDAQ:QCOM) boosted its dividend by 40% in March 2013, and cumulatively by 84% since May 2010. Despite such a high recent increase in QUALCOMM, Inc. (NASDAQ:QCOM)’s dividend, the stock is yielding only 2.2%. The company’s payout ratio is low at 31% of the current-year EPS estimate. The chipmaker’s long-term EPS CAGR, at 18.0% for the next five years, could support dividend growth that would double the payout within three years.
QUALCOMM, Inc. (NASDAQ:QCOM) is the major beneficiary of the smartphone and mobile computing revolution, as it has a leading position in application processors with integrated basebands for smartphones. The company’s revenue from mobile chipsets has risen so fast over the past two years that Qualcomm has ascended from the world’s ninth to third largest chipmaker by revenues. This marked the fastest rise in the top ranks of any chipmaker in recent history. In the first quarter, the company’s delivered a 24% increase in revenues, 16% growth in non-GAAP EPS, and 14% increase in MSM shipments.
The growth streak is expected to continue, with double-digit revenue and EPS CAGR targets for the next five years, as smartphone penetration increases and 3G expansion continues in emerging markets. In fact, Gartner forecasts that smartphone unit shipments will grow at a CAGR of 24% between 2011 and 2016, while tablets will see a 41% CAGR over the same period. Wireless Intelligence expects 3G/4G connections growth in emerging markets of a cumulative 255% between 2011 and 2016. This growth will drive a robust demand for QUALCOMM, Inc. (NASDAQ:QCOM)’s chipsets across the three dominant smartphone operating systems. Still, risks of a slowdown exist, especially if emerging market growth in 3G/4G falters and competition gains market share.
HollyFrontier
HollyFrontier Corp (NYSE:HFC), an independent petroleum refiner, has a strong balance sheet with long-term debt-to-equity of 20% and nearly 24% of total assets in cash and short-term investments. The company has been paying both regular quarterly and special dividends since mid 2011. Since announcing the merger in 2011, the company has increased its regular quarterly dividend by 300%. It supplements the regular quarterly payouts with 50-cent special dividends, which the company paid five times in 2012. Its current yield on the regular dividend is 2.4% and its payout ratio is only 19%. While analysts forecast a modest 3.4% EPS CAGR for the next five years, the company is well positioned to continue growing its regular dividend, with a possibility of doubling it within three years.
