A select group of stocks have consistently beaten the market for
the last century. Known as "
," these are companies that consistently raise their dividend
payment every year.
Consider some of the best-performing stocks over the last 30
They all share the common attribute of consistent
Look no further than McDonald's as an example. In 1976, the
fast-food restaurant chain initiated its first dividend at an
annual rate of $0.10. At the time, McDonalds stock traded around
$3.50. Some 37 years later, McDonalds dividend has grown to
$2.52. Meanwhile, the stock has soared 2,695% (that's no
If you're looking to really grow your investment income and
capital gains, you don't want to own McDonald's. Instead, you
need to own the
Today, I'll recommend five
dividend growth stocks
that are poised to double their dividends within the next few
years. This rapid dividend growth should result in impressive
share price gains. Plus, the growing dividend means that income
investors can expect bigger
in the years ahead.
Dividend Growth Stock #1: Cisco Systems (Nasdaq:
It's been a rough decade for Cisco. The networking giant has
had trouble adapting to increased competition, and shareholders
have been punished. Over the last decade, the stock posted a loss
of 6%. And the last five years haven't been any better - an
investment in the S&P 500 would have beaten
One small bright spot has been the company's dividend, which
was initiated in 2011. Since then, the quarterly dividend has
tripled and Cisco stock offers a 3.5% yield.
Even with increased competition and weak sales, Cisco is in
great financial shape. The company's balance sheet is pristine,
with $50.6 billion in cash and investments. That amount equals
45% of the entire market cap of the company. In addition to
dividends, Cisco has been using cash to buy back stock. In late
2013, the board authorized another $15 billion for buybacks.
Looking forward, a special dividend or substantial dividend hike
could be on the horizon.
Dividend Growth Stock #2: CVS Caremark (
CVS made headlines last month when the company announced that
it would stop selling tobacco products. That move highlights the
fact that CVS is a healthcare company, and not a tobacco shack.
With 7,600 stores, CVS is the second-biggest drug store after
Walgreen (NYSE: WGN). The company should benefit from Obamacare
and demographic shifts including the aging of America.
On the dividend front, CVS hasn't been very generous with its
dividends. The current annual dividend of $1.10 translates into a
1.5% yield. But over the last three years, that dividend has
grown 120%. It's no coincidence that CVS shares have jumped by an
identical amount (exactly 119.9%) over the last three-year
With a low dividend payout ratio of just 24%, there is plenty
of room for CVS management to pay bigger dividends. Historically,
CVS has spent $3 on share buybacks for every $1 on dividends.
Another double of the dividend is very plausible over the next
three or four years.
Dividend Growth Stock #3: Discover Financial Services (
are the best-known credit card companies in the world. Both
stocks have rewarded investors over the last five years, with
Visa gaining 341% and MasterCard soaring 439%.
But the lesser-known Discover Financial Services may be the
best bet for income investors who are also seeking growth. Like
the bigger credit card companies, Discover hasn't been generous
with its dividend. But its 1.4% yield is double the dividend
offered by Visa and MasterCard. And over the last five years, the
stock has increased tenfold.
Last year, Discover upped its dividend by a handsome 43%. With
a dividend payout ratio of just 12%, Discover could easily
increase its dividend payout by another 50% in the next year. For
investors who buy the stock today in the $50s, it's easy to
imagine a cost-basis dividend yield of more than 3% in just a few
Dividend Growth Stock #4: Ford (F)
Motor City has been roaring back to life, with new vehicle
sales in the U.S. topping 15 million units in 2013. At Ford, U.S.
sales rose by a solid 11%. That was enough to raise the company's
profits by 26%.
After taking a dividend hiatus since 2006, Ford began paying a
dividend again in 2012. Last year, the company doubled the
dividend and now pays $0.50. With shares trading around $15, the
stock yields a decent 3.2%.
Next year, Ford's earnings per share are expected to soar more
than 40% to nearly $2. That should allow Ford to generously
increase its dividend payments. With a decent yield today, Ford
offers investors a bet on the recovery of the American auto
industry and the possibility of much bigger dividend checks.
Dividend Growth Stock #5: Qualcomm (Nasdaq:
Qualcomm has a great business. The company makes chips that go
Apple (Nasdaq: AAPL)
, Samsung and others. Growth in the smartphone market has helped
Qualcomm grow its sales by 126% over the last three years.
With a 1.9%
, many income investors overlook this stock. But that's clearly a
mistake. Over the last four years, Qualcomm doubled its dividend
payout. With $31.6 billion in cash and investments on the balance
sheet and no long-term debt, the company is in superb financial
Qualcomm's dividend payout ratio currently stands at just 33%.
That - combined with the huge cash stash - means that the company
could easily up its dividend payments.
There are obviously no certainties in the world. But time and
again, I've seen dividend growth stocks like these beat the
market. Buying and holding dividend growth stocks isn't sexy. But
it is a simple strategy for building wealth by owning profitable
companies that are committed to their shareholders.
What are your favorite dividend growth stocks? Send me an
I'll share some of your top ideas with fellow
Income & Prosperity
readers next week.
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