As important as a stock's dividend yield is, its dividend growth can also play a vital role in income generation. Yes, a stock with a seemingly great dividend yield can look appealing, but a high payout ratio could limit future dividend increases. So, here are 11 stocks that combine good dividend yields and good dividend growth.
To find stocks with decent yields, a history of growing their dividends and the wherewithal to continue boosting payouts, I screened for the following criteria:
-- Minimum Market Cap: $2 billion.
-- Dividend Yield: 3% or higher.
-- Number of Years of Consecutive Annual Dividend Increases: At Least five.
-- Five-Year Compound Annual Growth Rate for Dividends: 7.2% or more. That's the approximate rate needed to double a dividend every 10 years.
-- Payout Ratios: Below 50% for each of the past two years and the trailing 12 months.
Perhaps not surprisingly, my rather stringent criteria produced just 11 names, dominated by banks and financials. Those include BB&T Corp. (BBT) (3.1% current yield), Hope Bancorp (HOPE) (3.1%), Huntington Bancshares (HBAN) (3.5%), Principal Financial Group (PFG) (3.8%), and Prudential Financial (PRU) (3.6%).
Tobacco company Altria (MO) (4.7% current yield) also made the list, as did retailer Target (TGT) (3.1%). Rounding out the list was Harley-Davidson (HOG) (3.4%), Cardinal Health (CAH) (3.7%), specialty-chemical name LyondellBasell Industries (LYB) (3.5%) and advertising giant Omnicom Group (OMC) (3.4%).
An interesting side note is that many of the names above have not only consistently raised their dividends, but have also bought back plenty of stock over the past five years. For instance, Target reduced shares outstanding by nearly 19% since 2013, while LyondellBasell cut share count by some 32% and Harley-Davidson repurchased 27% of its stock. Coupling that with dividend growth can create a potentially powerful dynamic for income investors.
So, remember to look at a stock's dividend growth rather than just dividend yield. You might sacrifice some near-term income by going with a stock that offers a lower yield but good dividend growth, but the longer-term rewards can be very enticing.
(This article was originally sent Aug. 23 to subscribers of TheStreet's Income Seeker, a product presenting the world of opportunities in fixed income and dividend stocks. Click here to learn more about Income Seeker and to receive articles like this each day from Nick McCullum, Hale Stewart, Peter Tchir, Jonathan Heller and others.)
