Dividend aristocrats are dividend-paying companies that comprise the S&P500 Dividend Aristocrats Index. These companies are known for their policy of consistent dividend increases for more than 25 years in a row. Since 1989, dividend aristocrats as a group have produced higher average risk-adjusted returns than the broader S&P500 index. The group is a combination of blue chip companies operating in diverse industries. While all S&P500 Dividend Aristocrats Index constituents increase their dividends every year, some companies make larger payout hikes than others. Here are three dividend aristocrats that have bolstered their dividends at fast rates. If these three companies maintain their average rates of dividend hikes from the past five years, they will double their payouts within five years.
Target Corp. (TGT) is a $38.7 billion retailer, the second largest in the United States after Wal-Mart (WMT). The company pays a dividend yield of 2.1% on a payout ratio of 28%. The company's rivals Wal-Mart and Costco Wholesale Corporation (COST) pay yields of 2.4% and 1.3%, respectively. Target has been raising dividends by an average annual rate of 20.1% a year over the past five years. If the company's rate of dividend increases in the next five year averages the rate achieved over the past five, Target will double its payout by 2015.
The retailer is trading at $57.9 a share or 11.9 times its forward earnings. The company's earnings per share (EPS) are expected to rise by an average of nearly 12% per year for the next five years, double the average annual growth rate over the past five years. Target Corp.'s stock is up 13.3% year-to-date. Fund manager Wallace Weitz is bullish about the company. Chris Davis and Ken Fisher sold out of their respective positions in the company in the first quarter of 2012.
Medtronic Inc. (MDT) is a medical device maker with market capitalization of $38.3 billion. The company pays a dividend yield of 2.6% on a payout ratio of 28%. Competitor Boston Scientific Corporation (BSX) does not pay any dividends, while St. Jude Medical Inc. (STJ) pays a yield of 2.3%. Medtronic has been raising dividends at an average annual rate of 16.7% a year over the past five years. Assuming that the company will continue to boost dividend payouts at this rate in the next five years, it is likely that the medical device maker will double its payout by 2016.
The company's shares are currently changing hands at $36.85 or 9.5 times the firm's forward earnings. Analysts forecast that the company's EPS will rise by 6.2% a year in the next five years, compared to a slower rate of about 6.0% a year over the past five years. Medtronic stock is down almost 5% since the beginning of the year. Guru fund manager Ken Fisher is bullish about the stock. So is financier George Soros who added the stock to his portfolio in the first quarter of 2012 (see George Soros' top picks).
T. Rowe Price Group (TROW) is a $14.6 billion investment company offering mutual funds, asset management advisory services, and account management for personal and institutional clients. The company pays a dividend yield of 2.3% on a payout ratio of 46%. Its peers AllianceBernstein (AB), Janus Capital Group (JNS), and Franklin Resources (BEN) are yielding 7.8%, 3.3%, and 1.0%, respectively. The company has been raising dividends at an average rate of 15.4% a year over the past five years. This year, the company raised its dividend by a more modest 9.7% to $0.34. If this company's dividend increases continue to average the annual rate accomplished in the past five years, the investment firm will double its payout by 2016.
The stock of T. Rowe Price Group is trading at $57.5 a share or 14.9 times the company's forward earnings. Analysts forecast that the company's EPS will grow by a robust 13.8% per year for the next five years. This compares to an average annual rate of growth of 9.0% a year over the past five years. The company's stock is flat year-to-date. Fund manager Ken Fisher is fan of the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.