- High dividend growth rates can turn a small income stream into a huge one in a matter of years.
- I have listed 3 stocks with low payout ratios that have increased their dividends over the past 5 years.
- All 3 stocks have balance sheet perfection.
Stocks with high dividend yields are great for people who need regular returns on their investment, such as retirees who are living off their dividends. However, for someone like me, with a longer investment horizon, a high dividend growth rate might be more attractive.
In this article I will be examining three stocks that match the following criteria:
- Low current yield: Dividend yield < 1.5%
- High dividend growth rate: Dividend increase of at least 100% over the past 5 years
- Low payout ratio: Under 50%
TJX Companies Inc. (NYSE:TJX)
TJX Dividend data by YCharts
Investors in TJX have seen their dividend income grow year after year. TJX currently pays a quarterly $0.175 dividend, which at the current price per share of $54.45 yields 1.29%. In the most recent fiscal year, which ended in January, TJX had earnings per share of $2.94 and paid $0.55 in dividends, giving it a payout ratio of only 18.7%.
Analysts expect TJX's EPS to reach $3.15 in the current fiscal year, which means there's still more than enough room for dividend increases. TJX's forward P/E stands at 17.3, which is very close to its 5-year average of 17.2.
TJX's balance sheet looks very good, with a current ratio of 1.72 and a quick ratio of 0.88. A large amount of cash provides extra safety for the dividend. ($2.44 billion in the most recent quarterly report, which is 6.4% of TJX's market cap).
Ralph Lauren Corporation (NYSE:RL)
RL Dividend data by YCharts
Ralph Lauren currently pays its shareholders a quarterly $0.45 dividend, which is nine times more than 5 years ago. At the current price per share of $153.48, shares in Ralph Lauren now yield 1.17%. Last year's earnings per share were $8.43, of which $1.70 was paid to investors in the form of dividends, giving the company a payout ratio of only 20.2%.
Analysts expect Ralph Lauren EPS for the current fiscal year to reach $8.73, which at the current price per share gives us a forward price to earnings ratio of 17.58. This is quite a bit cheaper than the 5-year average P/E ratio which stands at 19.9
RL's balance sheet looks amazing, with a current ratio of 3.43, and a quick ratio of 2.38. Furthermore, the company has $1.29 billion in cash, which is $20.77 per share or 9.43% of RL's market cap.
Visa Inc. (NYSE:V)
V Dividend data by YCharts
Having more than tripled its dividend over the past 5 years, I believe Visa deserves a place on this list. At a price of $214.83 per share, Visa now yields 0.74% in dividends annually. In the most recent fiscal year, Visa had earnings per share of $7.59. $1.32 was paid out in the form of dividends, giving the company a payout ratio of only 17.4%.
Analyst expectations for this year's earnings per share stand at $8.99. This means Visa is currently trading at a forward P/E ratio of 23.89, which sounds very reasonable, considering the 5-year average P/E ratio of 29.1.
Visa's balance sheet is different from most companies, not only because it doesn't have to hold any inventory, but also because the company has $0 in long-term debt. Visa has $1.82 billion in cash, which is $3.64 per share, or enough to pay the current $0.40 dividend for over 2 years.
All of the companies in this article have proven their ability to raise dividends at a very high pace. Furthermore, they all have very good looking balance sheets. However, this article provides only a small summary of these 3 companies, so before you invest, make sure you do your homework.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.