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Investors that are in the accumulation phase of their portfolio have the flexibility to seek high total returns from their investments rather than requiring high current yields. Companies with moderate dividend yields and substantial dividend growth rates have many of the benefits of dividend paying companies, while also achieving a significant amount of company growth. There are some high-yielding companies and partnerships that also offer high dividend growth, but most commonly, high dividend growth is found among low and moderate yielding dividend stocks with low payout ratios. I personally utilize a mix of low, moderate, and high yielding investments.
Presented below is a list of potentially attractive dividend investments that have enjoyed double-digit compounded dividend growth over the last five years, and that have recently raised their dividends by either a high-single-digit percentage or another double-digit percentage.
Aflac, a large health and life insurer, has an interesting business model. Rather than target individuals, Aflac markets its insurance through businesses, which then can offer Aflac’s insurance products to individuals, who then can keep their Aflac insurance even if they leave the job. This allows Aflac to keep prices competitive. In addition, Aflac has strong customer loyalty both in the United States and especially in Japan.
Dividend Yield: 2.65%
5-Year Dividend Growth Rate: 20%
Most Recent Dividend Increase: 7%
Payout Ratio: 27%
Medtronic is the largest independent durable medical technology company. Through its seven segments, Cardiac Rhythm Disease Management, Spinal, Cardiovascular, Neuromodulation, Diabetes, Surgical Technologies, and Phsyio-control, Medtronic is growing internationally. The company fuels its EPS and dividend growth both through company growth and share repurchases. The company was once highly overvalued, but over the last few years has had a rather low and attractive valuation, in my opinion. The balance sheet is decent, and company-wide growth is rather consistent.
Dividend Yield: 2.64%
5-Year Dividend Growth Rate: 19%
Most Recent Dividend Increase: 8%
Payout Ratio: 34%
General Mills (GIS)
Based in Minnesota, General Mills holds a collection of powerful brands, including Cheerios, Green Giant, Haagen-Dazs, Betty Crocker, Yoplait, and more. The company as founded back in the 1800s, and although there are is currently a lot of competition with its products, and there’s risk of commodity costs affecting profitability, General Mills operates in a defensive industry. Slow revenue growth is a problem, but cost-cutting has allowed the company to continue net income growth, and share repurchases have boosted EPS growth further.
Dividend Yield: 3.23%
5-Year Dividend Growth Rate: 10%
Most Recent Dividend Increase: 9%
Payout Ratio: 45%
McDonalds offers predictable and highly scalable growth, and shareholder friendly management. The company is much larger than its rivals, with much higher brand recognition and advertising spending, and even more promising, the company’s net profit margin at over 20% is in a whole different league compared to its rivals. With a decent balance sheet and strong cash flows, MCD is able to support and grow its dividend over the long term. The company has a long history of consecutive revenue growth with an exception in 2009, and offers both company-wide growth and per-share growth. McDonald’s sells its products to nearly as many customers per day as the total current population of South Korea.
Dividend Yield: 2.83%
5-Year Dividend Growth Rate: 27.5%
Most Recent Dividend Increase: 11%
Payout Ratio: 52%
Molson Coors (TAP)
Molson Coors seems to be a value stock among larger brewers, and has strengthened its position with a joint venture with SABMiller. The downsides are that the company’s strong Canadian segment is not growing, and beer sales in the UK have encountered poor returns due to reduced on-premises drinking and unfavorable currency changes. The company does face larger competitors, but still has strong market share in both the US and Canada. The balance sheet is fairly strong, and is much stronger than it was a few years ago.
Dividend Yield: 2.82%
5-Year Dividend Growth Rate: 11%
Most Recent Dividend Increase: 14%
Payout Ratio: 35%
COP, one of the larger integrated oil companies, has given shareholders good returns over this past decade, and maintained dividend growth through the sharply falling oil prices of 2008 and 2009. The company maintains a strong balance sheet, but not as strong as some of the company’s larger rivals. Most interestingly, the company announced plans to split into two separate publicly traded entities- an Exploration and Production company that will remain as ConocoPhillips, and a separate Refining and Marketing company. If this were to occur, according to CEO and Chairman Jim Mulva, this means there would be an incremental dividend increase for shareholders, because ConocoPhillips will continue paying its current absolute dividend to shareholders (with plans to continue raising it), and this new downstream entity which will be spun off to shareholders may begin paying a dividend as well.
Dividend Yield: 3.51%
5-Year Dividend Growth Rate: 13%
Most Recent Dividend Increase: 20%
Payout Ratio: 32%
As of this writing, I own shares in MDT, but have no positions in any of the other companies mentioned.
You can see my full list of individual holdings here.