3 great income stocks that could double their dividends

DIndividual stocks can be one of your biggest investments in building wealth, as long as you pick the right stocks. By that I mean you need to avoid the most common mistake made by income investors: looking for high yields rather than quality dividends.

High yields don’t necessarily make a dividend-paying stock great, as a dividend yield is simply a function of a stock’s price, which can fluctuate. On the flip side, stocks that consistently increase their dividends often turn out to be the best long-term dividend-paying stocks in terms of total shareholder return. In fact, you would be amazed to know that some very low yielding stocks have doubled their dividends in as little as five years, and that has added more to patient shareholder returns than you might think. If you don’t believe me, check out the track record of these three incredible dividend-growing stocks and why they could double their dividends in the next few years.

A solid company that supports a higher dividend

Home deposit (NYSE: HD) only started increasing its dividend after 2010. Yet Home Depot has increased its dividend at such a dazzling rate since then, forget about doubling … its quarterly dividend has almost increased sevenfold since 2010! That includes an exceptional 2019 in which the company paid 32% higher dividends than in 2018, but there’s no denying that Home Depot has emerged as one of the fastest growing dividend-growing stocks in recent years.

Image source: Getty Images.

The Home Depot has built a strong brand image over the years and enjoys strong economies of scale as the world’s largest home improvement retailer, but I consider agility to be one of its advantages. greater competitive advantages. To give you an example, the company recently chartered its own transport vessels to avoid shipping delays at a time when the COVID-19 pandemic has increased demand for its products.

Home Depot made a big leap in growth in 2020 when it acquired HD Supply to expand its presence in the maintenance, repair and operation (MRO) products market. This seems like a timely move given that the pandemic has spurred interest in do-it-yourself repairs, and the company’s omnichannel approach that offers customers the ability to purchase MRO products in-store or online. line should prove successful.

Going forward, while many believe The Home Depot is solely focused on DIY sales, professional contractors become even more valuable customers for the business and could help increase its revenue. As profits increase, dividends should increase; and even if Home Depot increases its dividend annually by a reasonable rate of 10%, its current quarterly dividend of $ 1.65 per share could double within eight years. An oversized dividend year like 2019 could mean dividends doubling much faster for this 1.9% yielding stock.

A dividend stock under the radar with huge potential

Sherwin-Williams (NYSE: SHW) Often goes under the radar of income investors, and the only possible reasons I can think of are its stingy 0.8% return and the uninspiring nature of the company’s painting and coating business. Yet Sherwin-Williams perfectly reflects the age-old adage, “boredom is beautiful.”

In fact, Sherwin-Williams stock returns in recent years could put some high-yielding stocks to shame, and dividends had a role to play in that regard: the company was paying a quarterly dividend of $ 0.22 per share. in 2015. This year, it distributes $ 0.55 per share in quarterly dividends, doubling its dividend in just five years.

SHW Chart

SHW data by YCharts

So what’s behind Sherwin-Williams’ incredible dividend growth, and what are the chances that it will keep the momentum going? Here are some incredible facts and statistics that will answer most of your questions:

  • Sherwin-Williams is the world’s largest paint and coatings company.
  • It generated nearly 36% more revenue than its closest rival, PPG Industries, in 2020.
  • It has more than 4,700 stores in 120 countries.
  • Its sales have grown at a compound annual rate of 10.2% over the past five years.
  • Its adjusted earnings per share grew at a compound annual rate of 17.1% in five years.
  • He has made 11 acquisitions over the past decade, including Valspar in 2017.
  • It has increased its dividend each year for 42 consecutive years.

Sherwin-Williams’ annual dividend this year translates into a solid 22.9% increase over 2020. With management committed to paying 30% of GAAP EPS as dividends each year, there are strong odds that Sherwin-Williams will double its dividend again within five to six. years.

This dividend could quadruple and the stock could soon reach $ 1 trillion

I think Visa (NYSE: V) is an extremely underrated dividend-paying stock. Visa isn’t much of a favorite among income investors, as it barely returns 0.6% and its target dividend payout ratio of 20% to 25% may leave a lot to be desired.

Still, management’s strategy to prioritize growth spending has gone a long way in increasing profits over the years, ultimately leading to bigger dividends and massive returns for shareholders in recent years.


V data by YCharts

In terms of dividends, Visa has doubled its quarterly payout in just five years – it paid a quarterly dividend of $ 0.56 per share in 2016 and pays $ 1.28 per share each quarter this year. I think Visa could easily double its dividend again in as many years thanks to important growth catalysts, especially digitization and the boom in e-commerce which is expected to support the demand for cashless payment methods like credit cards. credit and debit and mobile wallets.

With 3.6 billion co-branded cards in circulation, Visa is already one of the world’s leading payment processors. Plus, high margins ensure the company earns tons of cash year after year, which management then uses for organic growth and acquisitions before paying target dividends and repurchasing shares. As you can see in the graph above, the strategy has worked very well in favor of shareholders so far, and there is little reason to believe that it will not be in the future. In fact, Visa is currently on such a solid footing that it is one of the few companies that could be worth $ 1 trillion by 2035 or sooner, and its dividend may even have quadrupled by then.

10 stocks we prefer over Visa
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Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool owns shares and recommends Home Depot and Visa. The Motley Fool recommends Sherwin-Williams. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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