Can S&P 500 Top Dividend Growers Continue Their Strong Dividend Growth?

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 |  Includes: AET, APH, CA, ESV, HAR, RL, UNH, V, WU, WYN
by: Arie Goren

Summary

Listing the ten S&P 500 companies that have increased their dividend payouts by the highest average rate during the last five years.

Investors can expect all these companies to continue their steady dividend growth.

The average compound annual dividend growth for the past five years of the ten companies was at 66.32%.

When a company has a long-term track record of consistent and rising dividend payments, it is a clear indicator that the company's financial position is good. Investing in companies that regularly raise dividends provides security in an uncertain market and means higher returns ahead. I consider that besides dividend yield, the consistency and the rate of raising dividend payments are the most crucial factors for dividend-seeking investors.

In this article, I looked for the ten S&P 500 companies that have increased their dividend payouts by the highest average rate during the last five years, and I tried to analyze if these companies can continue their strong dividend growth.

The table below presents the ten S&P 500 top dividend growers. The data were taken from Charles Schwab website and Portfolio123 on June 21.

Click to enlarge

The table below presents the ten S&P 500 top dividend growers, their average compound annual dividend growth for the past five years, their dividend yield and the payout ratio.

UnitedHealth Group Incorporated (NYSE:UNH)

UNH's cash flow from operations was $1.408 billion in the first three months of 2014, compared to $1.053 billion a year earlier. The total debt to equity ratio is relatively low at 0.50, and the trailing twelve months' price-to-free-cash-flow ratio is fairly low at 16.30.

Since UnitedHealth is generating strong cash flow and the payout ratio is very low at 20.17%, I believe that the company can achieve steady dividend growth going forward.

UNH Dividend Chart

UNH Dividend data by YCharts

Ensco plc (NYSE:ESV)

Ensco maintained a strong financial position in the first quarter of 2014:

  • $10 billion of contracted revenue backlog excluding bonus opportunities
  • Long-term debt-to-capital ratio of 27%
  • Fully available $2 billion revolving credit facility
  • $123 million of cash and cash equivalents

ESV's payout ratio is relatively low at 42.29%, and it maintained a strong financial position. Furthermore, the demand for new oil and gas exploration is increasing, and the earnings growth prospects of the company are strong. All these factors lead me to believe that the company can continue to raise its dividend payments.

ESV Dividend Chart

ESV Dividend data by YCharts

Aetna Inc. (NYSE:AET)

Aetna's trailing twelve months' price-to-free-cash-flow ratio is very low at 12.33, and the total debt to equity ratio is not too high at 0.58. Since Aetna's payout ratio is very low at 14.30%, I think that the company can continue its strong dividend growth.

AET Dividend Chart

AET Dividend data by YCharts

Visa Inc. (NYSE:V)

Visa's financial strength is very good; its board recently authorized a new $5 billion buyback to be executed over the next two fiscal years. Furthermore, the company has no debt at all, and payout ratio is very low at 17.29%. All these factors lead me to believe that the company can continue to raise its dividend payments.

V Dividend Chart

V Dividend data by YCharts

The Western Union Company (NYSE:WU)

WU generates substantial cash flows; its trailing twelve months' price-to-free-cash-flow ratio is very low at 13.72. The company repurchased $4.3 billion of shares from 2008 to 2013. In 2013, WU used around $400 million to buy back stock. Since payout ratio is low at 34.77%, I believe that there is real possibility that WU will continue to raise its dividend payments.

WU Dividend Chart

WU Dividend data by YCharts

Harman International Industries, Incorporated (NYSE:HAR)

Since HAR's debt to equity ratio is low at 0.16, and the payout ratio is also low 36.29%, I believe that the company is well-positioned to achieve steady dividend growth going forward.

HAR Dividend Chart

HAR Dividend data by YCharts

Amphenol Corporation (NYSE:APH)

APH's financial strength is good and it bought back 4.3 million of its shares in 2013. Since the payout ratio is very low at 17.38%, I think that the company can continue to raise its dividend payments.

APH Dividend Chart

APH Dividend data by YCharts

Wyndham Worldwide Corporation (NYSE:WYN)

WYN's generates substantial cash flows, its trailing twelve months' price-to-free-cash-flow ratio is very low at 14.76, but it has a very high debt to equity ratio of 3.20. On the other hand, its payout ratio is only 32.73%, and its earnings growth prospects are strong. All these factors lead me to believe that the company can continue to raise its dividend payments.

WYN Dividend Chart

WYN Dividend data by YCharts

CA Inc. (NASDAQ:CA)

At the end of FY14, CA had $3.25 billion in cash, cash equivalents and short-term investments, and total debt was $1.77 billion. Although its payout ratio of 50.90% is the highest among the S&P 500 top dividend growers, I think that CA can continue to raise its dividend payments.

CA Dividend Chart

CA Dividend data by YCharts

Ralph Lauren Corporation (NYSE:RL)

Since Ralph Lauren has a very low debt, its total debt to equity ratio is only 0.14, and its payout ratio is very low at 19.72%, I think that the company can continue to raise its dividend payments.

RL Dividend Chart

RL Dividend data by YCharts

In conclusion, all the ten S&P 500 top dividend growers have a low payout ratio and solid financial position. In my opinion, investors can expect all these companies to continue their steady dividend growth.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.