Dividends are a key piece of any investor’s return on equities and have historically helped to provide greater total returns compared to non-dividend paying stocks through dividend re-investment and the power of compounding on these re-investments.
As an investor, rather than just focusing on the current dividend being paid to shareholders, it is important to look at the company’s growth prospects going forward and the ability to both sustain and increase the current dividend. If companies are able to increase earnings at a high rate into the future, they are able to reward shareholders with higher dividend payments as well as share repurchases, investments in new growth areas, and debt repayments.
Below is a list of seven stocks that provide both a sizable current dividend and have a 5-year estimated annual earnings growth rate of at least 10% (click to enlarge image):
Occidental Petroleum (OXY) is an oil and natural gas exploration and production company that primarily conducts business in the United States. The company has a market cap of $67.7 billion, a ROE of 17.1%, a PEG ratio of 0.85, and a 5-year estimated annual earnings growth rate of 12%. With its higher concentration on U.S. energy opportunities than most other petroleum companies, OXY has less risk to foreign production disruptions and political instability found in some developing nations. Occidental Petroleum often benefits directly from these instances due to the realization of higher oil prices and increased profit.
Caterpillar, Inc (CAT) produces and sells equipment to the construction and mining industries in addition to diesel and natural gas engines, industrial turbines, and locomotives. The company also has a financing division to provide customers with additional loans, insurance, and other financial products. Caterpillar has a market cap of $55.5 billion, a ROE of 34.4%, a PEG ratio of 0.74, and a 5-year estimated annual earnings growth rate of 17.5%. A double-dip recession would hurt CAT, but I feel that much of this has already been priced into the stock. Many companies are now flush with cash from trimming expenses and delaying projects over the last three years. They will now look to invest more of this money in capital expenditures of the coming years. Caterpillar’s share price should benefit from any type of positive economic recovery news or agreements on U.S. and European debt issues.
AFLAC, Inc (AFL) provides customers with life insurance and supplemental health and incomes products. This has become an increasingly important field as more consumers now have a worry over job-loss and potentially unaffordable medical costs associated with an illness or accident. The company has a market cap of $17 billion, a ROE of 16.4%, a PEG ratio of 0.48, and a 5-year estimated annual earnings growth rate of 12%. Unlike many insurance companies, AFLAC does not have a large property insurance division. This allowed the company to avoid many of the recent tornadoes, flooding, and hurricanes that have devastated some areas of the country.
Archer-Daniels-Midland Co. (ADM) is an agribusiness that purchases, transports, warehouses, processes, and sells agricultural commodities and specialty products in more than 75 countries worldwide. ADM has a market cap of $19.3 billion, a ROE of 12.1%, a PEG ratio of 0.91, and a 5-year estimated annual earnings growth rate of 10%. Farmers planted a record number of acres of con this year, but the floods and drought that have hit the Midwest should result in lower crop yields. This may lead to higher commodity prices, allowing ADM to raise the prices on its products and sell its grain held in storage at a higher price. The global demand for grains continues to grow, and ADM is positioned well to profit from multiple steps in the process of growing crops and bringing the end result to consumers.
Arcelor Mittal (MT) is an integrated producer and distributor of steel products. The company is the largest steel manufacturer in the world and supplies many of its own raw materials that are required in steel production. Arcelor Mittal has a market cap of $28.7 billion, a ROE of 5.1%, a PEG ratio of 0.3, and a 5-year estimated annual earnings growth rate of 25.3%. The share price has been hit hard due to the world economic issues and the threat of another slow-down, but most of this should be priced into the stock at this point. If a second recession does not materialize, or is not as bad as many consumers fear, Arcelor Mittal’s share price will likely experience a large positive jump.
Staples, Inc (SPLS) provides office products and office service solutions to firms of all sizes through its website and more than 2,000 stores. The company has a market cap of $10.5 billion, a ROE of 13.8%, a PEG ratio of 0.76, and a 5-year estimated annual earnings growth rate of 14%. Staples is the world’s largest office supply company and has recently worked hard to update and remodel its older stores and increase the number of Staples-branded products sold in order to extend its lead.
Jabil Circuit, Inc (JBL) is a diversified electronic solutions company that focuses on offering electronics design, production, and product management services to electronics and technology companies all over the world. The firm provides these products and services to several different markets, including aerospace, automotive, computing, defense, industrial, medical, networking, and telecommunications industries. Jabil has a market cap of $3.9 billion, a ROE of 18.9%, a PEG ratio of 0.77, and a 5-year estimated annual earnings growth rate of 10%. The company’s stock has experienced a recent jump, so it may make sense to wait for a pullback in order to establish a position.