My colleague Amy Calistri lovesstocks that grow their
One need only look at her track record to see why. Last month,
her portfolio of Fast Dividend Growers in her
newsletter posted average total returns of 55% while yielding
Amywill tell you thatdividend growth is more important than
astock 's initialyield for long-terminvesting . That's because
rising payouts lead to a larger yield on the initialinvestment
over time, thanks to the effects ofcompounding , while ensuring
the company has plenty ofcash to grow and remain stable.
For example, consider
, which is growing its dividend by roughly 10% ayear .
Coke'sshares currently yield a mediocre 2.8%, but if dividends
continue to grow 10% a year, an investment made today would climb
to 4% by year 5 and to 5.4%, or nearly double the initial yield,
by year 8.
With this in mind, let's look at four of the top dividend
growers this year and see whether they make sense for
Dividend hike: 36%
With a $798 billion loan portfolio and roughly 25%market
Wells Fargo (
is the dominantmortgage originator in the United States. A
key strength for Wells Fargo is its cross-selling platform,
which allows it to sell additional products and services to
existing customers. This is the envy of other large banks
and a driver of feeincome . In this year's first quarter,
Wells Fargo's cross-selling ratios were 6.1 products per
household for itsretail banking operations and 10.3
products per customer for itswealth management services.
This month, Wells Fargo reported record first-quarter
results that included 23% year-over-year growth innet
income to $5.2 billion, or 92 cents a share. The company
has been a consistent leader in profitability within the
banking sector, posting areturn on assets (ROA) of 1.5% and
areturn on equity (ROE) of 13.1% in the past 12 months.
Wells Fargo has already raised its dividend twice this year
for a total increase of 36%. At the new annualized forward
dividend of $1.20, shares yield 3.1%. Thepayout ratio is
modest at 26%, and there is a high likelihood of continued
dividend growth based onanalyst forecasts of 8%earnings
growth in each of the next five years.
Herman Miller Inc.
Dividend hike: 39%
The inventor of the cubicle,
Herman Miller (Nasdaq: MLHR)
is a leading designer and manufacturer of high-end office
furniture and equipment. Weakened demand from U.S.
government customers has hurt Herman Miller's earnings in
recent years, but with risingsales in China and
double-digit growth in its specialty and consumer segments,
the company appears poised for aturnaround .
After four consecutivequarters of year-over-year sales
declines, Herman Miller posted 6% sales growth and 9.4%
growth inbacklog during its fiscal third quarter, which
ended in March.Earnings per share (
) jumped 23.1% to 32 cents.Analysts are predictingEPS
growth of 21% in the fourth quarter and 27% for next
This month, management indicated its confidence in a
turnaround by hiking the dividend 39% to an annualized rate
of 50 cents, double last year's dividend of 25 cents.
Herman Miller shares yield 1.9% and have a 34% payout
ratio, which leaves plenty of cushion for growth.
Dividend hike: 40%
A world leader in wireless technologies,
Qualcomm (Nasdaq: QCOM)
is a dominant player in chipsets for the smartphonemarket ,
with a 48% market share. The company shipped a record 182
million chipsets in the first quarter, up 17% from a year
Qualcomm also posted recordrevenue and EPS for the
quarter. Revenue climbed 29%, to $6 billion, and EPS jumped
30% to $1.26, handily beating the consensus analysts'
estimate of $1.13. With no slowdown in sight for smartphone
demand, analysts forecast Qualcomm will deliver annual EPS
growth of at least 15% for the next five years.
Anote of caution: Qualcomm is likely to face increased
competition in the smartphone market from
Intel (Nasdaq: INTC)
, which plans to launch new cutting-edge products this
In March, Qualcomm approved a 40% hike in the dividend, to
an annualized rate of $1.40, and a new $5 billion share
repurchase program. The payout ratio is 31%, and shares
Ford Motor Co.
Dividend hike: 100%
is off to a great start this year. Its Ford Focus ranks as
the world's top-selling car, and its Fusion is gaining on
Camry. Ford is also growing by leaps and bounds in China,
where first-quarter sales this year were up 54% from the
same period a year ago.
Ford's fourth-quarter revenue was $36.5 billion, up $1.9
billion from the same quarter a year ago, and profits were
$1.7 billion beforetaxes . That's an increase of $577
million and the highest in more than a decade. The period
marked Ford's 14th consecutive profitable quarter. EPS rose
to 31 cents from 20 cents, beatingWall Street forecasts of
25 to 28 cents.
Additionalprofit gains are likely to come from lower
manufacturing costs, the result of a common platform
approach. Ford expects 80% of its global production
(roughly 6 million vehicles) to come from just five
platforms by 2016, down from 27 platforms five years
Ford has doubled its annual dividend this year to 40
cents, a 3% yield. In addition to its modest 14% payout
ratio, Ford has enormous cash ($24.4 billion) andcash flow
($9 billion in the past 12 months) tosupport research and
development, share buybacks and dividends.
Risks to Consider:
Shares of both Herman Miller and Ford are highly cyclical and
suffer during downturns in the U.S.economy . Qualcomm may soon
face renewed competition in the smartphone market.
Action to take -->
My top pick overall is Qualcomm for its dominant position in the
fast-growing smartphone market. Investors who want a higher yield
may prefer Ford or Wells Fargo. Herman Miller is a good choice as
a turnaround play.
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