Even though they may not have high dividend yields, some stocks are growing dividends at exceptionally fast rates. Investing in the stocks with rapid dividend growth offers a potential to grow investment income faster than by investing in some stable higher-yielding companies with slow dividend growth. Here is a sample of three vibrant companies growing their dividends at rates of 20% or more a year over the past five years.
CSX Corporation (CSX) is a $21.6 billion company providing rail transportation services. The company pays an annual dividend with a yield of 2.70% on a payout ratio of 23%. CSX Corporation has been growing dividends by 30.2% a year over the past five years. It recently increased its quarterly dividend by 16.7% to $0.14 a share. The company's peers, namely Union Pacific Corporation (UNP), Norfolk Southern Corporation (NSC), and Kansas City Southern (KSU), boast yields of 2.20%, 2.80%, and 1.2%, respectively. The company beat earnings estimates in the first quarter 2012 on both its top and bottom lines. Despite weak coal transportation volumes, the company's revenues grew 5.6% year-over-year in the first quarter and EPS surged 23% over the same period. The company is expected to grow its EPS by an average annual rate of 9.6% over the next five years. Ken Fisher and Bill Gates reported stakes in the company at the end of first quarter of 2012.
Tiffany & Co. (TIF) is a $7.7 billion company selling high-end jewelry and silverware. The company pays a dividend yield of 1.90% on a trailing-twelve-month basis and a yield of 2.10% based on an annualized new rate. The company has been growing dividends at an average rate of 23.7% a year over the past five years. It has recently upped its quarterly payout by 10.3% to $0.32 a share. The company's dividend payout ratio is 33%. Tiffany & Co.'s publicly-traded competitors, including Zale Corporation (ZLC) and Blue Nile Corporation (NILE), do not pay any dividends. The company has seen double-digit revenue growth in recent years, despite the increase in gold price. Lately, concerns have emerged about possible sales dips in China, Korea, and Europe as well as tougher year-over-year comparisons for the next few quarters. Interestingly, a Qatari sovereign wealth fund recently acquired a 5.2% stake in the company. Analysts expect Tiffany & Co. to grow its earnings by 14.3% a year, on average, over the next five years. Billionaire Ken Fisher reported a stake in the company at the end of the first quarter of 2012.
Williams Companies (WMB) is a $17.6 billion energy company engaged in natural gas exploration, processing and transportation. The company also operates power-generation assets. The business pays a dividend yield of 3.5% (on a trailing-twelve-month basis) on a high payout ratio of 114%. Williams Companies has been growing dividends by 20.4% a year over the past five years. Recently, the company boosted its quarterly dividend by 15.9% to $0.30 a share. The company expects to raise its full-year 2012 dividend by 55% over the annual dividend of $0.775 a share paid in 2011. It also expects to continue increasing its dividend by 20% in both 2013 and 2014. The company's peer El Paso Corporation (EP) pays a dividend yield of 0.1%, while Energy Transfer Partners (ETP) pays a dividend yield of 8.0%. Williams Companies' EPS is expected to grow robustly by an average of 16.4% a year over the next five years. While the company has an attractive dividend yield, it boasts relatively unfavorable valuation, with P/E of 22.7, compared to the industry average of 7.7. Leon Cooperman and Ray Dalio hold stakes in the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.