All dividend stocks are not created equal. Some offer stable dividend payouts while others grow their dividends rapidly, returning increasing amounts of their ballooning cash flow to shareholders. Below are four large capitalization companies that have produced robust growth in dividend payouts. Given the substantial cash holdings of these companies, as well as the expectation of strong earnings growth in the future, these dividend payers are likely to double their payouts within the next seven years or less.
- 10-Year Average Annual Dividend Growth Rate: 30%
- Three-Year Average Annual Dividend Growth Rate: 11%
This $96.4 billion company is the world's largest chain of hamburger fast-food restaurants, serving some 64 million customers around the world. The company is considered a dividend aristocrat, increasing dividends every year since 1976. McDonald's current dividend of $2.80 is almost 12 times bigger than the annual dividend paid back in 2002. The company has been increasing dividends by nearly 30% annually over the past decade and by about 11% per year, on average, over the past three years.
The company is currently yielding 2.93%, which is 80 basis points above the industry's average and 90 basis points above the average for the S&P 500. Two of the company's peers, Yum Brands (YUM) and Darden Restaurants (DRI), are yielding 1.62% and 3.4%, respectively. McDonald's is using only 48% of its earnings, or 60% of its free cash flow per share, to pay its dividend. Analysts expect the company to grow its earnings per share by some 10% annually over the next five years. The stock is trading at $94.46, with a current P/E of 17.6 and a forward P/E of 15.
Cardinal Health (CAH)
- 10-Year Average Annual Dividend Growth Rate: 26%
- Three-Year Average Annual Dividend Growth Rate: 16%
Cardinal Health is a $14.8 billion healthcare services company that provides pharmaceutical and medical products and services. The company pays $0.86 a share in dividends to its shareholders annually, which is 860% more than in 2002. At the current dividend rate and prices, Cardinal Health's stock is yielding 2.0%, more than double the industry and on par with the S&P 500. Two of ts competitors, McKesson (MCK) and AmerisourceBergen (ABC), are yielding 0.9% and 1.4%, respectively.
Cardinal Health has increased dividends for 22 years in a row. The company has been boosting its dividend at an average rate of 26% annually over the past decade and by about 16% annually over the past three years. Historically, the payout ratio has averaged 15.5%, but recently has increased to 32% of the company's earnings. Expressed as a share of free cash flow, the ratio stands at a low 26%. Analysts forecast that Cardinal Health will grow its bottom line by 11.8% annually over the next five years. With a current P/E of 14.5 and a forward P/E of 12, Cardinal Health's stock is trading at $42.51.
- 10-Year Average Annual Dividend Growth Rate: 25%
- Three-Year Average Annual Dividend Growth Rate: 13.5%
Wal-Mart is a $202-billion retail giant that operates discount department stores and warehouse store chains in the U.S. and internationally. The company is a dividend aristocrat that has been paying dividends since 1972. With a current dividend of $1.59 a share, Wal-Mart is yielding 2.7%, above both the industry's average and the broader market as measured by the S&P 500 index. In comparison, Wal-Mart's rivals Target (TGT) and Costco (COST) are currently yielding 2.2% and 1.2%, respectively.
The company has been growing its dividend payout by 25% annually, based on the average over the past 10 years. In the past three years dividends grew, on average, by 13.5% annually. The cash-rich retailer is using only a third of its earnings for dividend disbursements, or about 47% of its free cash flow. Analysts expect the company to increase its earnings per share by 8.7% a year over the next five years. With a current P/E of 13 and a forward ratio of 11.2, Wal-Mart is currently trading for $59 a share.
- 10-Year Average Annual Dividend Growth Rate: 20%
- Three-Year Average Annual Dividend Growth Rate: 23%
Walgreen is the largest U.S. drugstore selling prescription and non-prescription drugs and general merchandise, including household and personal care items, and convenience foods. The $29.2 billion company is another dividend aristocrat that has been increasing dividends for 36 consecutive years. It currently yields 2.7% (on a $0.90 dividend). This is 50 basis points above the industry's average and 70 basis points above the current yield on the S&P 500. For comparison, competitor CVS Caremark (CVS) is yielding 1.4%, while competitor RiteAid (RAD) is not paying any dividends.
Walgreen has been increasing dividends at a nearly 20% average annual rate over the past decade. Since 2008, it has increased dividends by 23%. The company is currently using about 31% of its earnings, or 42% of its free cash flow, to cover its dividend allocations. Analysts expect the company to grow its earnings per share by 10.5% annually over the next five years. Walgreen is currently trading at $33.25, $3 above its 52-week low. It has a current P/E of 11.35 and a forward P/E of 11.60.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.