Five Stocks with Strong Dividend Growth Prospects
Andrés is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Growing dividends are one of the most valuable characteristics a stock can have; few things are more effective than steadily rising cash flows from an investment to generate confidence about the worth of a company and its underlying strength. These five companies combine strong business prospects with plenty of upside room in their dividend payments due to low payout ratios. This makes them attractive candidates from a dividend growth point of view.
1. This Dividend is Insured
Aflac (NYSE: AFL) is a big player the Japanese life insurance business, a market with strong demographic tailwinds when it comes to supplemental converge. The business enjoys a very sticky customer base: the persistency rate in Japan is nearly 95% and the average customer has been with the company for nearly 20 years. Aflac is well known for its conservative risk management policies, which allowed the company to successfully go through the terrible earthquake and subsequent tsunami that affected Japan in 2011.
Aflac has grown its dividend for a long time; 30 consecutive years of dividend increases, to be precise. The company is exposed to fluctuations in the value of the Yen, which is a source of uncertainty, but it has a very solid financial position and the dividend payout ratio is quite low in the area of 22% of earnings. The dividend yield for the last year is 2.8%, and the company has recently announced a 6.1% increase in dividends
2. A Network of Dividends
Growing internet traffic and connectivity needs bode well for Cisco (NASDAQ: CSCO) in the coming years. The company has been facing increased competition from low cost Asian players like Huawei and ZTE, but Cisco still holds the quality leader position in networks and connectivity on a global scale. The company is restructuring its business lines and disposing the less attractive segments; this could mean higher expenses in the short term but better profitability in the future.
Financial strength is unquestionable at Cisco; the company has more cash and liquid investments than debt on its balance sheet, and it translates more than 20% of revenue into free cash flows. The company yields an attractive 3.25% in dividends, and the payout ratio is below 19% of earnings for the last year.
3. A Smart Company With a Smart Dividend
Accenture (NYSE: ACN) made a smart strategic move when it identified the outsourcing trend early in the game; the company established delivery centers in low-wage countries like India and the Philippines before competitors. This leadership in outsourcing is becoming very valuable now that corporations around the globe are trying to reduce costs as much as possible, and these projects also produce recurrent cash flows for Accenture in a time of lackluster corporate spending in consulting and technology.
This exposure to the countercyclical outsourcing business has been a positive factor behind the company´s better than expected quarterly numbers reported at the end of September. In fact, Accenture did better than forecasted in the one region everyone else is having a really hard time in: Europe. Accenture pays less than 35% of its earnings as dividends, and currently has a dividend yield of 2.4%.
4. Energizing Your Dividends
Shares of Chevron (NYSE: CVX) have fallen by 8% in the last month, as investors are selling the stock due to concerns regarding lower production and uninspiring prices for energy commodities. This could be an opportunity for long term investors; Chevron is a high quality name with a solid track record of profitability and sound capital allocation.
Chevron may be slowing down recently, but the company has many promising projects in the Gulf of Mexico, West Africa, northwest Australia, and the Gulf of Thailand that should fuel growth over the next few years. Yielding 3.24% in dividends and with a payout ratio below 25%, Chevron is a high quality candidate for dividend growth investors in the energy sector.
5. Not even a Whale Could Sink This Dividend
Shares of JP Morgan (NYSE: JPM) have more than fully recovered from the “London Whale” scandal that produced so much uncertainty around the company over the last few months. Two consecutive quarters of earnings beats have been of great help to dissipate the doubts about JP Morgan and the quality of its business. The bank has made some serious progress at cleaning up its balance sheet and, if the real estate sector continues improving, JP Morgan should see better profitability over the following years.
JP Morgan has a big amount of derivatives in its balance sheet, and that means higher risks and lower visibility for investors. Still, those uncertainties are reflected in the company's valuation as JP Morgan trades at a Price to Book value of 0.8, well below historical averages in the range of 1.2-1.4. JP Morgan pays a 2.9% dividend yield and has a payout ratio below 25% of earnings.
Bottom Line
When you buy a stock, it’s certainly nice to know that the company will continue increasing dividends over the years, even under challenging conditions. High quality names with strong fundamentals and low dividend payout ratios are a great place to look for the best dividend growth candidates to hold for the long term.
Interested in Learning More?
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acardenal has no positions in the stocks mentioned above. The Motley Fool owns shares of Aflac and JPMorgan Chase & Co. Motley Fool newsletter services recommend Accenture Ltd., Aflac, and Chevron. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
