The most common driver of dividend growth is expanding earnings per share. As EPS increases, so should dividends. Since January, there have been several companies with upgrades in long-term earnings growth rate estimates, and dividend increases should track these upgrades.
The following companies have experienced increases in 5-year anticipated EPS growth rates and are rated as a "buy": United Technology (NYSE:UTX), UnitedHealth Group (NYSE:UNH), Walgreen (WAG), Statoil (NYSE:STO), and Southern Copper (NYSE:SCCO). Below are a few valuation comparisons including EPS growth rates, current dividend and yield, historic dividend growth rates, payout ratios and return on invested capital (ROIC):
Previous EPS Growth Rate Est
Current EPS Growth Rate Est
5-yr Dividend Growth Rate
One of the reason these companies are rated as "buy" is the value they offer present investors, including the dividend yield. The table below compares additional fundamental values, including the 2014 Price to Earnings Growth ratio, S&P Equity ranking for 10-year consistency in earnings and dividend growth, and anticipated 2-year total annual returns:
2014 PEG Ratio
S&P Equity Ranking
2-year Annual Total Return Est
These firms represent an interesting cross section of the global economy. While not considered barn burners of investment potential, these firms could be considered conservative bets on several different sectors of the economy. A brief description and investment thesis (beyond their rising earnings and dividend growth expectation) is below:
United Technologies is a major industrial and defense firm. UTX's major operating units are Otis Elevator, Climate and Security (Heating and Cooling -HVAC, fire and security alarm systems), and Aviation (Pratt and Whitney, Sikorsky, avionics).
UnitedHealth Group is a leading healthcare insurer offering individual, large and small business health plans utilizing a network of 778,000 doctors and healthcare providers. The firm is a major provider of supplemental Medicare plans for individuals over the age of 65.
Walgreen operates over 8,000 drugstores in the U.S. In addition, the firm offers specialty pharmaceutical services and wellness clinics. The company has experienced one of the highest historical growth rates in same-stores-sales of any U.S. retailer and is a critical factor in long-term retail profitability.
Statoil is a Norwegian energy company with extensive operations in the deep-waters of the North Sea, the Norwegian Sea, and the Barents Sea. The firm has been expanding with projects in North America include the Gulf of Mexico.
Southern Copper is a major copper producer and operates mines in Peru, Chile, and Mexico. As with most copper producers, SCCO is subject to the whims of the commodity price of copper, which is largely dependent on a growing demand from China and a limited supply.
Investors looking for a basket of conservative and diversified, dividend-paying equities may consider the above suggestions. With the market making new historical highs, these selections may offer some downside protection in a minor market selloff, as they are fundamentally attractive and have strong underlying growth prospects supported by above average returns on invested capital.
Author's Note: Please review important disclaimer in author's profile.
Disclosure: I am long UTX, SCCO, UNH. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.