Dividend Growth Is The Key To Dividend-Growth Investing
There are companies that are growing, growing companies that pay dividends, and growing companies that pay dividends with a high expectation of increasing their dividend every year. Of those, we prefer the third group although each has something to offer. Today's lineup of stocks includes three high-quality dividend-payers that are not only growing but growing their dividends as well. What's more, all three are set to increase their distributions with the next declaration and that is a catalyst for higher share prices. If you are looking for a place to park some dividend-growth capital one of these stocks could be a great fit for your portfolio.
1. Pepsico Confirms Uptrend, New Highs In Sight
PepsiCo (NASDAQ:PEP) lived up to our expectations when it reported the calendar Q1 results. The company not only beat on the top and bottom line but raised guidance as well. The combination of sound financial planning, diversification, and growth investments are paying off for this company and have it set up for growth over the coming years. The current consensus for revenue is a CAGR in the mid-single-digit range over the next 5 to 10 years with a notable uptick in the estimates over the past two months. The consensus for earnings is a CAGR in the high-single-digits and it too has seen a notable uptick in sentiment recently.
Turning to the dividend, Pepsico is the highest-yielding of the bunch but the yield comes at a price. The payout ratio is running near 70% and putting a lid on the distribution CAGR. The 5-year CAGR is running near 7% and the last increase was only 6% suggesting the next will be equally small. That said, the payout is safe, the balance sheet is strong and getting stronger, and the outlook for distribution increase is positive. The next increase should come with the next declaration which is expected next month. Looking at the chart, the market likes what it heard in the Q1 report and is already buying in.
2. PPG Industries Rockets Higher, Dividend Could Too
PPG Industries (NYSE:PPG) another great play on the consumer and stay-at-home trends with a twist. The company also has great exposure to business and industry, as well as the reopening, making it a highly diversified play for dividend-growth investors. The company just rocked out a better-than-expected quarter, raised guidance, and announced a major acquisition that has shares trading at new all-time highs right now.
The dividend yield is a bit lower than Pepsico but equally sound and with an even more positive outlook for distribution growth. At face value, the distribution is a mere 27% of earnings with both earnings growth and earnings leverage on tap. Looking forward, we not only expect to see PPG Industries increase the dividend for the 49th consecutive time but for that increase to be in the range of 8% to 10%. The only downside is the yield, at 1.28% it's not hard to find a better payout if not a healthier one. PPG Industries is expected to make its next dividend declaration in July with payment in August.
3. United Health) Is Making Healthy Dividend Increases
UnitedHealth (NYSE:UNH) has a yield comparable to PPG Industries but the best outlook for a robust dividend increase this year. The company has been raising the payout at a 20% CAGR over the past five years and we think this year's increase will be equally large. If you're thinking this can't last you're right but it can last a little longer, perhaps a lot longer, based on what we're seeing in the metrics. The company is not only producing ample cash and free-cash-flow it is growing both and paying out only 27% of its earnings. Add in the fortress balance sheet and the outlook for dividends and dividend growth only gets better. Turning to the chart, it looks like UnitedHealth is in a strong uptrend and showing a continuation signal. The current candle is long and green, breaks out to a new high, and is supported by bullish indicators that in turn show underlying strength in this market.
