As investors, we all love our dividends. But what's better? Dividends that grow and grow consistently over the long term.
While dividend investors should, of course, consider the current return on a stock to gauge their growth potential, investors should consider the current payout on retained earnings ability of a company to increase its earnings per share over time and management's capital allocation policies. All these factors determine the overall state of the business and, by default, the dividend status.
If you're looking for solid dividend stocks that you can buy and hold in the long term, five out of five factors are industries that could double their dividends over the coming years.
Dividend yield: 1.44%
Payout Ratio: 13%
A true definition of a value stock could be: Oshkosh (NYSE: OSK) that makes (very cool) heavy industrial vehicles such as aerial work platforms, off-highway vehicles for the US military, fire engines and other emergency vehicles and utility vehicles such as concrete mixers and garbage trucks.
This diversified portfolio is of paramount importance to Oshkosh, since the purchase of heavy equ The equipment may be a bit cyclical. Currently, investors fear a slowdown in the Access Equipment business, which accounts for around half of Oshkosh's revenue. This is not only due to macroeconomic concerns, but with very strong sales of access vehicles in recent years, the current fleet is still relatively new, so appetite for upgrades can be curbed next year.
Currently, however, the rest of Oshkosh's business seems to be relatively consistent and strong. In addition, management has a long history of success, and recently received the Glassdoor's Best Places to Work award in 2019.
This does not seem to be a company that should only trade at 9.3x. Fortunately, Oshkosh's management takes the opportunity to seek $ 350 million of share repurchases this year. Oshkosh has reduced the total number of shares by about 6% in the last 12 months, and it looks like these ample cash returns will continue. More share buybacks over the next few quarters and years means a smaller number of shares, leaving more room for an increase in Oshkosh's dividend, which accounts for only 13% of earnings.
Consumer Discretionary: Starbucks
Dividend yield: 1.48% ]
Payout ratio: 50.1%
Even if you Starbucks ( NASDAQ: SBUX) does not consider it a traditional dividend stock, it has become a unit for the past two years. As part of a recent initiative to simplify business operations, the company has sold all of its business outside of the US and China. These included the sale of the packaged goods business to Nestle which earned $ 7.1 billion in cool, and the non-core businesses to master franchisees.
After Starbucks divested these assets, he plowed the money into large share buybacks and then increased his dividend in 2017 by 20%, 2018 by a further 20%. And yet, I think Starbucks dividends can double in the next decade despite these recent increases.
The company has raised its dividend in the past Around November, or at the time the earnings for the fourth fiscal quarter were announced, investors are soon facing a further rise. And although the company is not growing as it has been in the last decade, management still believes that it can achieve a "long-term" double-digit EPS growth rate.
Even without an increase in the payout ratio of Starbucks, an annual 10% dividend increase – equivalent to the EPS – would allow Starbucks to double its dividend in about seven years. Although the stock is not particularly favorable today after a great run in 2019, the stock continues to be a solid choice for dividend growth due to its leading brand and robust business.
Tech: Applied Materials
Dividend yield: 1.68% ]
Payout ratio: 25.8%
Applied Materials (NASDAQ: AMAT ) is the highest-revenue semiconductor manufacturing company. The company manufactures etching and deposition equipment, as well as inspection tools for the manufacture of semiconductor chips, from advanced processors to memory chips to advanced displays.
Not only does Applied Materials' payout ratio exceed 25% growth, but this ratio is reached during a "down" year for semiconductor devices, which can be very cyclical. Applied Materials earnings per share actually fell 40% in the last quarter. This means that the company's current pay-out ratio is likely to be even lower on the basis of a "normalized" result.
There is also reason to believe that next year will return to growth. For one thing, we are already in a down cycle in the storage industry, which many analysts predict will develop positively in 2020. With the growth in storage demand, equipment purchases by Applied customers are also increasing.
In addition, all indications are that 5G buildouts will be accelerated faster than expected, which should require more advanced chips and therefore more Applied Materials equipment. Applied recently announced the acquisition of Kokusai Electric, a Japanese company with complementary products, where Applied Management expects immediate earnings per share.
Given the low payout ratio of Applied Materials and the long-term need for more advanced chips, the company's dividend appears to be increasing only in the coming years.
Finance: JPMorgan Chase  Dividend Yield: 3.12%
Payout Ratio: 32.65%
To be honest, it was difficult to get out of the big US Banks choose a financial company because most of them are shouting at the moment and ready for dividend growth. Why did I choose JPMorgan Chase (NYSE: JPM) ? Probably because of the "growth" part of the equation.
JPMorgan has the top franchise in the United States as America's largest money center bank, but that does not mean it can not grow yet. In fact, JPMorgan announced in 2019 a significant expansion of 90 branches in nine new US markets, mainly in the Southeast, Midwest and Pennsylvania.
That does not seem to be a company that's worried about getting too big to grow. However, JPMorgan's stock is only twelve times higher than its earnings, although earnings per share rose by a whopping 23% in the final quarter. This is attributable to an increase in net income of 16% and to extensive share buybacks.
Due to fears over the recently flattened yield curve, banks were generally sold this year and could very well curtail banks' margins in the coming quarters. This could also point to an economic downturn.
However, there is no guarantee that a recession will occur, and even if this is the case, JPMorgan has very high capital ratios to serve as buffers compared to 2008. In fact, JPMorgan did not need to seek state rescue in 2008, but agreed to maintain confidence in the other banks that needed it .
JPMorgan's security, growth profile and leading technology investments are all likely to drive future earnings growth. In combination with share buybacks at these low prices, dividend increases are more likely to be expected over the coming years.
Mining and Energy: Cleveland Cliffs
Dividend Yield: 3.17%
Payout Ratio: 5.1%
The Leading US Pure Iron Ore Conveyor Cleveland-Cliffs (NYSE: CLF) reintroduced as dividend stock only in the fourth quarter of 2018. The dividend was distributed years ago to ward off possible bankruptcy.
Obviously, the company is in a much better place today. CEO Lourenco Goncalves, who took over the company in 2014, sold all non-US and non-ferrous Cleveland-Cliff ore mines acquired from previous management. Subsequently, the debt was repaid and doubled the company's core properties in the US.
This helped boost the company's balance sheet, and Cleveland now has long-term take-or-pay contracts with major US steel manufacturers that keep the company profitable for most parts of the cycle and manageable losses (or no losses) should have. in case of a sharp downturn.
While Cleveland Cliffs actually benefited from tariffs imposed on Chinese imports in 2018, driving up US steel prices, the ongoing trade war and fears of a slowdown led to a price erosion recently. This has lowered Cleveland's share price and return to over 3%.
Nonetheless, management not only increased the quarterly dividend by 20% from $ 0.05 to $ 0.06 per share, less than a year after its reintroduction, but it also received an additional special dividend of $ 0.04 per share Share to be paid to the shareholders of the record October 4 (ex-dividend date October 2). Insiders have also bought shares during the recent swoon, which is certainly showing confidence in the face of falling steel and iron ore prices.
What makes the management so confident? It is likely that the company's new Hot Briquetted Iron (HBI) plant will be built in Ohio, which is expected to be completed by the first half of 2020. Once built, Cleveland-Cliffs will be able to produce a higher-quality, high-margin product for manufacturing newer electric arc furnace manufacturers. This should help to further strengthen the company's margins next year and maintain a consistent cash flow for the future.
At a recent industry conference, Goncalves said he would expect an increase in the company's dividend after completion of the HBI plant, or perhaps even more special dividends, as he does not expect it after the plant's completion Ohio to build more assets worth hundreds of millions of dollars. Such shareholder-friendly actions should be music for investors.