The following is an excerpt from 7 Dividend Stocks Whose Payouts Could Double in 3 Years.
The legendary Wayne Gretzky famously said that “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.”
Well, it’s not all that different with dividend stocks. If you’re looking for good long-term returns, you’ll buy a stock sporting an attractive dividend yield. But if you want great returns, you’ll look for stocks raising their dividends year after year.
Over a long time horizon, high-dividend-growth stocks are a lot more likely to keep pace with inflation. Plus, let’s face it — it’s nice getting a raise every year, and that’s exactly what dividend growth stocks do. With every passing year, the amount of cold, hard cash they put in your pocket increases.
But dividends also tell a far more important story. An exceptionally high dividend yield is often a sign of financial distress … and a sign that dividend cuts are a lot more likely than dividend hikes. But dividend growth is a sign of company health. Company boards of directors only vote to raise the payout if they believe a lot more cash will be coming in to replace it.
I don’t have a crystal ball, and I can’t say with 100% certainty which dividend stocks are going to grow their payout the fastest in the years ahead. But by looking at recent dividend growth history gives us a good starting point.
So, today we’re going to take a look at seven stocks that I expect to double their dividends over the next three years. None are what I consider monster dividend yielders today, but all pay a respectable current dividend that promises to get a lot bigger in the years to come.
You’re going to notice a lot of banks on this list, and there’s a good reason for that. After the 2008 meltdown, most banks had to slash or completely eliminate their dividends. And ever since, the Federal Reserve has kept them on a short leash, massively restricting their ability to pay or raise a dividend.
Well, that’s changing. After the most recent stress test by the Fed, most large banks were given the green light to boost their payouts … and they are doing so with gusto.
Take Citigroup Inc (C), for example. Citi just doubled its dividend last month and raised its stock buyback plan to boot.
But even after a monster dividend hike like that, Citi’s dividend payout ratio is an extremely modest 24%. Citi could double its dividend again tomorrow, with no change in earnings outlook, and not put itself at risk of financial distress. And that is exactly what I like to see.
Citi’s dividend growth will depend on its profitability over the next three years, which will in turn be affected by interest rates and by the overall health of the economy. Assuming that we avoid a major recession and that the Fed continues to gradually raise rates, the pieces are in place for very respectable profit growth. And given how low the payout ratio is at current levels, I’d be shocked if Citi didn’t double — or triple — its dividend over the next three years.
To read the rest of the article, please see 7 Dividend Stocks Whose Payouts Could Double in 3 Years.
Disclosures: Long C