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On Feb. 23, 2009, I made one of my first stock purchases,
buying shares of
(NYSE: AFL) . The stock, like every other stock on the public
markets at that time, had dropped precipitously. Investors were
concerned that a large swath of Aflac's normally safe investments
would end up being lost through defaults. I've held those shares
The company survived the crisis and has recently been hitting
all-time highs. As of this writing, shares trade around $73 and
pay a quarterly dividend of $1.64, which translates to a yield of
2.24% for those who buy today. However, because I bought at
$16.50, I'm currently enjoying an effective yield of 9% per
This investing success story owes mostly to luck: There's no
way I could have known for sure that Aflac would survive, and its
dividend wasn't even foremost in my mind. But I've held those few
shares -- which have returned 420% -- as a reminder: Buying
companies that continually grow their dividends can rapidly grow
your wealth over the years.
These stocks tend to have three key qualities:
- They use less than 75% of their free cash flow to pay out
- They raise their dividend payouts by more than 10% per
- They have businesses that continue to grow both revenue and
With that in mind, here are two more stocks that could easily
yield 10% or more in a few years -- if you buy them today.
Watching paint dry
The paint business might sound boring, but the returns that
(NYSE: SHW) shares have achieved are not. The company is
the market-leading provider of paints, coatings, and related
supplies for both retail and commercial customers. And though it
only offers a 1.1% dividend yield right now, it has the potential
for explosive growth going forward.
For starters, Sherwin-Williams consistently produces gobs of
free cash flow, and it has only used a fraction of that cash to
pay its dividend.
Create column charts
Over the past three years, the company has never used more
than one-quarter of its free cash flow to pay its dividend. That
means the dividend is not only safe if the economy turns south,
but also has lots of room to grow.
Management hasn't shied away from that growth. Over the past
five years, the dividend has grown from $1.46 per share to $3.36
per share today. That's an average bump of 18%
If you bought today and the dividend continued to grow at that
rate, then your yearly yield would reach 10% in 13 years.
That might sound like a long time, but it's important to
remember that there's lots of potential for the stock price to
appreciate as well. The stock trades for a fair 22 times free
cash flow, and the company's brand and market share provide a
solid competitive moat.
A spinoff that has lots of potential
In late 2012,
(NYSE: ABBV) was spun out of
. The move was deemed a way to unlock the value of AbbVie's
biopharmaceutical prowess. Since then, the stock has almost
doubled -- but the real story is the company's dividend
Like Sherwin-Williams, AbbVie currently has lots of room to
grow its dividend.
Create column charts
Over the last 12 months, the company has used just 45% of its
free cash flow on its dividend. That's especially important for a
company in the biopharmaceutical industry, where companies'
fortunes can swing wildly based on the FDA's approval or denial
of their treatments and the nature of patents. In some cases, an
FDA decision can make or break a biopharmaceutical, and when an
approved drug loses its patent protection and generic versions
flood the market, the company needs to produce another winner to
keep the business humming along.
In 2014, AbbVie's free cash flow plunged, but that was because
of an unsuccessful takeover bid and should be viewed as an
anomaly. And one of the company's biggest sellers, Humira, has an
additional advantage in that it is a biologic, rather than a
small-molecule drug that's easily replicable.
Since AbbVie went public, its dividend has grown at $1.60 per
year to $2.28, representing 13% growth per year. If you bought
shares today, and the company continued growing its dividend at
this rate, you'd be sitting on a 10% yielder in under a
Again, that may seem like a long time, but as with
Sherwin-Williams, there's also significant potential for capital
growth thanks to the company's R&D pipeline.
Of course, the potential for future 10% yielders isn't limited
to Sherwin-Williams or AbbVie. These are simply examples of
companies that fit the bill. Buy a stock that shares those three
qualities, let them compound over a decade, and you, too, could
have a dynamic wealth-builder.
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owns shares of Aflac. The Motley Fool recommends Aflac and
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