There are many dividend payers with low leverage and the capacity to grow earnings over time. Some of those companies are in a position to boost their payouts significantly, especially in cases when their expected medium-term EPS growth is robust. We screened mid- and large-cap companies with dividend yields over 2% and payout ratios below 40%. Among those companies, we selected the ones that are likely to boost their EPS at rates exceeding 10% per year for the next five years. It is worth noting that all selected companies currently yield more than the 10-year Treasury bond. All else being equal, the following five companies are in a good position to bolster their payouts in the medium term.
Occidental Petroleum Corporation (OXY) is a $72-billion oil and natural gas exploration and production company. The company pays a dividend yield of 2.4% on a payout ratio of 28%. Its peers Murphy Oil Corporation (MUR), ConocoPhillips (COP) and Exxon Mobil (XOM) pay dividend yields of 2.3%, 4.6%, and 2.8%, respectively. Over the past five years, the company increased its dividends at an average rate of 18% per year. The stock has a debt-to-equity ratio of 19%. Its EPS is forecast to expand at an average rate of nearly 11% per year for the next five years. The company's growth is expected to remain robust as Occidental Petroleum invests heavily in new exploration and development. It has high net margins and stands to benefit from higher energy prices. As regards valuation, the stock is trading at a small premium to its peer group; however, it is trading at a discount to the company's own historical metrics. Fund manager Ralph V. Whitworth (Relational Investors) reported investment of nearly $570 million in the stock and billionaire Ken Fisher reported owning as much as $470 million.
Cardinal Health (CAH) is a one of the largest distributors of pharmaceuticals and medical supplies in the United States, with annual revenues of more than $100 billion. With $17.6 billion in market capitalization, the company pays a dividend yielding 2.4% on a payout ratio of 31%. Its competitors McKesson Corp. (MCK) and AmerisourceBergen Corp. (ABC) pay dividend yields of 0.9% and 1.4%, respectively. Cardinal Health boosted its dividends at an average annual rate of 17.7% over the past five years. It has a manageable debt-to-equity ratio of 46%. The company's EPS growth is expected to average 10.8% per year for the next five years, which is acceleration compared to the average annual growth rate over the past five years. Cardinal Health has boosted growth through acquisitions and has benefited from strong generic sales. It stands ready to improve its results based on an evolving shift in mix from bulk to the higher-margin non-bulk sector. In terms of valuation, the stock is trading slightly below its industry and the company's own five-year average P/E metric. It is popular with Larry Robbins (Glenview Capital), Andreas Halvorsen (Viking Global), and billionaire D. E. Shaw (see his top positions).
Murphy Oil Corporation (MUR) is an $11-billion oil and natural gas exploration and production company and petroleum refiner. It pays a dividend yielding 2.3% on a payout ratio of 28%. The company's rivals Marathon Oil Corporation (MRO) and Marathon Petroleum Corporation (MPC) pay dividend yields of 2.5% and 2.8%, respectively. Its peers Occidental Petroleum Corporation , ConocoPhillips , and Exxon Mobil yield 2.4%, 4.6%, and 2.6%, respectively. The company boosted its dividends at an average annual rate of 12.3% over the past five years. It is forecast to increase its EPS at an average rate of 10.2% per year for the next five years. The company has a low debt-to-equity of 9%. In the previous quarter, despite the increase in revenues from higher oil and gas production, the company posted slightly lower overall revenues due to a drop in refining and marketing sales. Still, Murphy Oil was able to post higher EPS, helped by lower expenses and interest costs. The company is expanding its international exploration efforts, with projects in Iraq, Australia, Congo, and Malaysia. It has made natural gas discoveries in Malaysia and Brunei. As regards its valuation, the stock is trading at a premium to its industry, although it is selling at a discount to its own five-year average P/E. Billionaire Steven Cohen reported owning almost $230 million of this stock.
IAMGOLD (IAG) is a $4.5-billion gold miner. It pays a dividend yield of 2.2% on a payout ratio of 27%. Over the past five years, the company boosted its dividends at an average rate of 33% per year. Its competitors Barrick Gold Corporation (ABX) and Newmont Mining Corp. (NEM) pay dividend yields of 2.3% and 3.0%, respectively. IAMGOLD is debt free and is forecast to increase its EPS at an average rate of 11.3% per year for the next five years. The stock seems to have bottomed out and could benefit from a possible upward trust in gold prices. With a forward P/E of 9.1, IAMGOLD is trading at a discount to its peer group (with a forward P/E of 11.4). Its price-to-book, price-to-sales, and price-to cash flow ratios are below the respective industry averages. Value investor Jean-Marie Eveillard (First Eagle Investment Management-check out its top holdings) reported a nearly-$100 million stake in the company.
Nasdaq OMX Group (NDAQ) is a $4-billion owner and operator of financial exchanges. The company pays a dividend yield of 2.2% on a payout ratio of 25%. Its competitors NYSE Euronext (NYX) and CME Group (CME) pay much higher yields of 4.8% and 3.4%, respectively. The Nasdaq OMX Group has started paying dividends as of this year. It has a debt-to-equity ratio of 40%. Analysts forecast that the company's EPS growth will average nearly 11% per year for the next five years. The company's revenues and EPS stand to benefit from the rising dollar as the dollar-denominated investment assets gain in appeal, boosting trading volumes in these assets. As regards valuation, the stock is trading at a forward P/E of 8.7, which is well below the investment services industry's ratio of 13. The stock is also trading at a discount to its respective industry based on the price-to-book value, price-to-sales, and price-to-cash flow ratios. Billionaires Israel Englander and D. E. Shaw are bullish about the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.