This guest post was written by Jing Pan, security analyst for Income Investors. He advocates for commonsense, buy-and-hold investing. You can find his daily investment ideas and commentary at IncomeInvestors.com.
Collect Rising Payouts from These Dividend Growth Stocks
With rising inflation, a steady stream of dividends may not be enough to meet the needs of income investors with long-term horizons. Fortunately, there are dividend growth stocks that can provide investors with an increasing stream of income. Some of the best dividend stocks have already raised their payout this year. Here are five dividend growth stocks that will likely have good news for income investors for the rest of 2017.
Microsoft Corporation (NASDAQ:MSFT) may not be the hottest name in the tech sector, but as a dividend stock, it has done a tremendous job. The company started paying quarterly dividends in 2004. And since then, it has raised its quarterly dividend rate every single year by a total of 387.5%.
A company needs to have a recurring business to pay sustainable dividends. On that front, note that Microsoft established its presence by creating the “MS DOS” operating system for International Business Machines Corp.’s (NYSE:IBM) personal computers in the 1980s. And the “first mover” advantage the company has obtained still serves it well today; last month, different versions of “Microsoft Windows” had a whopping 90.2% share in the desktop operating system market.
What’s more is that the company wasn’t really paying out all that much. In the first three quarters of Microsoft’s fiscal 2017, it generated $1.87 of earnings per share while declaring $1.17 of dividends per share, translating to a payout ratio of 62.6%. This leaves a margin of safety.
Microsoft usually reviews its dividend policy every year around September. I believe the company will announce another increase to its quarterly dividend rate sometime in the next few months.
U.S. Bancorp (NYSE:USB) is the parent company of the U.S. Bank National Association, the fifth-largest commercial bank in America. The bank provides a comprehensive line of banking, investment, mortgage, trust, and payment services. It has 3,091 branches in 25 states and 4,838 ATMs.
U.S. Bancorp is currently paying quarterly dividends of $0.28 per share, giving it an annual dividend yield of 2.14%. While the yield may not be something to brag about, note that the bank has been raising its payout. In the last five years, U.S. Bancorp’s quarterly dividend rate has increased 43.5%.
It also helps that the banking industry has extremely high barriers to entry. For a company to compete with U.S. Bancorp, it would need to raise a huge amount of capital, set up a branch network, and convince millions of customers to switch—a very difficult task indeed. This allows companies like U.S. Bancorp to keep generating handsome profits, and return some of that profit to shareholders.
Verizon Communications Inc
Compared to most dividend growth stocks in today’s market, Verizon Communications Inc. (NYSE:VZ) stands out with its 5.0% dividend yield. To give you some perspective, the average yield of all S&P 500 companies right now is at a measly 1.9%.
Verizon is a multinational telecommunications conglomerate. Wireless communications is its core business as Verizon Wireless accounted for more than 70% of the company’s total revenue last year.
Just like the banking industry, the wireless communications industry has high barriers to entry. There are strict regulations, plus the huge cost of building cell phone towers and bidding for wireless spectrums. That’s why in the U.S., the industry is dominated by just four major companies: Verizon, AT&T Inc. (NYSE:T), Sprint Corp (NYSE:S), and T-Mobile US Inc (NASDAQ:TMUS). Verizon is currently the biggest player in the business, with a 35% market share.
Today’s Verizon stock was a result of the merger between Bell Atlantic and GTE. If you take into account the company’s history as Bell Atlantic, you’d see that Verizon has paid either steady or increasing dividends for 33 years. I wouldn’t be surprised if the company’s dividend track record continues.
Lockheed Martin Corporation
Defense companies are usually not the first ones to come to mind when it comes to finding dividend growth stocks. But if income investors ignore Lockheed Martin Corporation (NYSE:LMT) stock, they could be missing a big opportunity.
Headquartered in Bethesda, Maryland, Lockheed Martin is a global security and aerospace company. It operates through four segments; Aeronautics, Missiles and Fire Control, Rotary and Mission Systems, and Space Systems. Generating $47.2 billion in sales last year, Lockheed Martin is the largest defense contractor in the world.
The company has been growing its business. In the first quarter of 2017, net sales increased 6.7% year-over-year to $11.1 billion. One particular thing to note is that Lockheed is famous for making the military’s fifth-generation combat aircraft, the “F-35 Lightning II,” which often brings in large contracts. In May, the company was awarded a $137.9-million contract to support the production of the “F-25 Lightening II” aircraft.
Most recently, Lockheed Martin won a $413.8-million contract from the U.S. Air Force for Lot 15 production of the Joint Air-to-Surface Standoff Missile (JASSM)-Extended Range (ER) version.
Dividend Growth is what makes Lockheed Martin stand out in today’s market. The company currently pays $1.82 per share on a quarterly basis. In the past 10 years, LMT stock’s quarterly payout has increased by more than fivefold.
Due to its booming business, I expect the company to announce another double-digit increase to its dividend rate sometime later this year.