Microsoft Among 5 Dividend Stocks Looking To Double Payouts Within 6 Years

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 |  Includes: AAPL, AFL, CEO, DHR, DOV, GGG, GOOG, HRL, IBM, ITW, MSFT, ORCL, PRU, PTR, SAFM, SFD, SNP, TSN, UNM
by: Dividendinvestr

High rates of dividend growth are usually an indicator of strong revenue and earnings performance, as also robust cash flow generation. Stocks of companies that increase their dividends at high rates generally tend to outperform their peers with low or no dividend increases.

Here is a sample of five dividend stocks that have raised dividends at healthy double-digit rates, on average, each year over the past five years. If the same average dividend increases are sustained in the future, these companies will double their payouts by 2017.

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Microsoft Corporation (NASDAQ:MSFT) is one of the companies on track to double dividends within the next six years. The $245-billion software giant has been raising dividends at an average rate of 14.2% a year over the past five years. If the company maintains the same average rate of dividend increases, it will likely double its payout by 2017.

Microsoft Corporation pays a dividend yield of 2.7% on a low payout ratio of 29%. The company's peers Oracle (NYSE:ORCL) and IBM Corporation (NYSE:IBM) pay yields of 0.9% and 1.7%, respectively. Apple (NASDAQ:AAPL) has announced a dividend payment in its fiscal fourth quarter 2012 equaling to a yield of 1.9% at current stock prices. Competitor Google (NASDAQ:GOOG) does not pay any dividends.

Analysts expect Microsoft to grow its earnings per share (EPS) by an average of 8.9% a year for the next five years. The company's shares are trading at $29.2 or some 9.6 times the company's forward earnings. The stock is up 9% from the beginning of the year. Guru fund managers Ken Fisher and David Tepper are fans of the stock. Leon Cooperman sold out of his stake in the company in the first quarter of 2012.

Hormel Foods Inc. (NYSE:HRL) is a $8-billion meat and food producer. The company is also a dividend aristocrat, raising dividends for 46 consecutive years. Hormel Foods has been raising its dividend payout by an average rate of 13.9% a year over the past five years. Assuming that the company can keep raising dividends at the same average rate in the future, it will likely double its payout within the next six years.

Hormel Foods pays a dividend yield of 2.0% on a payout ratio of 34%. The company's competitors Tyson Foods (NYSE:TSN) and Sanderson Farms (NASDAQ:SAFM) pay dividends of 0.8% and 1.3%, respectively. Peer Smithfield Foods (NYSE:SFD) does not pay any dividends. Analysts expect the company to grow its EPS by an average rate of 10.3% per year for the next five years. Shares of Hormel Foods are trading at $29.9 or 15.2 times the company's forward earnings. They are up 2.4% year-to-date. Mad Money's Jim Cramer is bullish on the stock. However, currently, the stock is not really in vogue with famous fund managers. Both Ray Dalio and Joel Greenblatt sold their stakes in the company last year.

Aflac Inc. (NYSE:AFL) is a $18.7-billion supplemental life and health insurer with largest operations in Japan and the United States. The company is a dividend aristocrat, raising dividends for 29 years in a row. It has been growing its dividend payout at an average annual rate of 13.7% over the past five years. If it continues to boost its payouts at the same average annual rate in the future, the company will double its payout within the next six years.

Aflac currently pays a dividend yield of 3.3% on a payout ratio of 26%. The company's peers Unum Group (NYSE:UNM) and Prudential Financial (NYSE:PRU) pay yields of 2.0% and 3.1%, respectively. Analysts forecast that Aflac's EPS will increase at an average rate of 11.1% per year for the next five years. The company's stock is currently trading at $40 and change or 6.5 times the insurer's forward earnings. The stock is down almost 11% year-to-date. Fund manager John Rogers of Ariel Investments holds a stake in the company.

CNOOC Limited (NYSE:CEO) is China's largest producer of offshore crude oil and natural gas with a market capitalization of some $80 billion. The company has been raising its dividend payout by a robust 13.0% a year, on average, over the past five years. Assuming that the company will continue to bolster its dividend by the same average rate in the coming years, CNOOC will be on track to double its dividend by 2017.

The energy company pays a dividend yield of 3.5% on a low payout ratio of 26%. Its rivals, including PetroChina Company Limited (NYSE:PTR) and China Petroleum & Chemical Corp. (NYSE:SNP), pay dividend yields of 3.6% and 3.1%, respectively. CNOOC is expected to grow its EPS, on average, by 9.1% annually for the next five years. The company's shares are trading at $179.35 or 6.5 times the cpmpany's forward earnings. The shares are down little less than 3% from the beginning of the year. Billionaire Ken Fisher holds a stake in the company.

Illinois Tool Works (NYSE:ITW) is a $27-billion manufacturer of diversified industrial products and equipment. The company is a dividend aristocrat that has raised dividends for 48 consecutive years. It has been raising its dividend payout by an average rate of 12.3% a year over the past five years. If the company continues to boost its dividend by the same average annual rate in the future, it will be on track to double its dividend in the next six years.

The company has a dividend yield of 2.5% on a payout ratio of 36%. Competitors Graco (NYSE:GGG), Dover (NYSE:DOV), and Danaher Corporation (NYSE:DHR) have yields of 1.8%, 2.2%, 0.2%, respectively. Analysts estimate that the company's EPS will rise, on average, 12.3% a year over the next five years. The stock of Illinois Tool Works is changing hands at $56.15 a share or 11.9 times the company's forward earnings. The stock is up almost 17% from the start of the year. Billionaire Steve Cohen had $75 million invested in ITW at the end of March (see Steve Cohen's stock picks).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.