In the depths of the financial crisis in late 2008,shares of
were struggling as much as any otherblue-chip stock .
That summer, shares slid from around $20 to nearly $15 by
autumn, and few had the guts to step in and catch thatfalling
knife . Still, the $1.56 a sharedividend must have tempted some
investors, as thedividend yield briefly moved above 10%.
Five years later, those intrepid few are very pleased indeed,
as Lorillard's dividend now stands at $2.20 a share. That works
out to be a 14%current yield on that 2008 share price, which
nicely complements a nearly 200% rebound for thestock .
And this tobacco maker has company. Lorillard is one of a
handful of companies that have boosted their dividends by an
average of at least 17% in the past three years.
Investors are increasingly focusing on these kinds of
companies, as they tend to keep boosting their dividends at an
aggressive pace. Take a look at the top dividend boosters over a
five-year span. Many of the three-year winners make the grade
here as well.
In fact, it should come as no surprise that the most robust
dividend hikers over the past few years are also among the
companies with the most impressive dividend growth over the past
decade. Year in andyear out, these companies have been returning
morecash to shareholders. If you managed to buy any of
thesestocks a decade ago, you should be quite pleased.
Looking ahead, it's fair to wonder if these dividend champs
can remain atop the leaderboard. After all, as I've noted, some
of them, such as
L Brands (
, are already bumping up against fairly high payout ratios, which
means that dividendswill likely only grow at the rate ofearnings
Yet some of these stocks surely have what it takes to stay at
the forefront of the dividend arms race. I took a deeper look at
the companies noted on the tables above, seeking out companies
with reasonable payout ratios and solid earnings growth
prospects. A few names stand out.
Archer Daniels Midland (
Prior to the financial crisis of 2008, this leading agricultural
giant was clearly committed to steady and strong dividend growth.
Yet over the past half decade, the company has seen its growth
sharply slow as key divisions such as ethanol production
generated lousy financial returns.
Yet as I've noted, ADM is becoming a favorite ofWarren Buffett
's. And Buffett is known for his focus on companies with
risingcash flow prospects. How do we know ADM is poised for
rising cash flow? Because the company just started paying more
attention to its dividend, boosting it by more than 20%, its
largest increase in a decade.
ADM Dividend Growth Rate
Source: Thomson Reuters
Analysts at Merrill Lynch predict that ADM'snet income will be
flat in 2013, but they foresee net income climbing 30% in 2014
and another 14% in 2015. Simply keeping thepayout ratio constant
wouldyield robust dividend increases. Yet ADM's payout ratio,
with the exception of 2012, has typically been around 20%. A hike
in the payout ratio to 30%, coupled with the cash flowgains ,
could lead to 15% to 20% annual dividend increases for quite a
while to come.
ADM Payout Ratio
Intel (Nasdaq: INTC)
This chipmaker has boosted its dividend at a double-digit pace in
eight of the nine past years. What was once a 16-cent-a-share
annual dividend in 2004 has grown into a dividend that is already
up to 90 cents. Althoughprofit growth remains fairly anemic,
Intel has been earning more than $10 billion a year in each of
the past three years. Assuming the company's current $13 billion
in net cash is more than sufficient to run operations, Intel can
-- and should -- return excess profits to shareholders. Assuming
a 75/25 split between dividend payments and share buybacks, Intel
could afford tooffer a dividend of $1.50 a share.
Risks to Consider:
Every half-decade or so, theeconomy spooks companies into
holding the line on dividends, or even forces them to cut them,
so don't expect dividend growth to always take place in a linear
Action to Take -->
If you are in search of companies capable of robust dividend
growth, then take a look at the historical payout ratios.
Ifincome is now growing faster than the dividend, then the payout
ratio has probably fallen and could soon be in for a
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