The only thing better than passive income is growing passive income and there’s no better way to do that than with dividend stocks.
Dividend investors are constantly on the prowl for companies that can consistently increase their payouts.
While the Dividend Aristocrats Index and list of Dividend Kings are popular places to look for reliable income stocks, we found three quality companies that have recorded extreme dividend growth in recent years.
The following three dividend stocks have boosted their payouts by at least 30% per year over their last five fiscal years, and have strong potential to continue raising their dividends at healthy rates.
Dividend Stocks That Grow Their Payouts Like Weeds: Cummins Inc. (CMI)
Dividend Yield: 3.41%
Payout Ratio: 49%
Cummins Inc. (CMI) manufactures and services diesel and natural gas engines, electric power generation systems and numerous components used in engines.
The company also owns distributors that provide aftermarket support services to its dealer network to keep its engines up and running.
The company’s key end markets include highway and heavy-duty vehicles, construction and general industrial markets; approximately 40% of sales are in international markets.
Cummins is a high-quality dividend growth stock because it has a large portfolio of patented engine technologies, maintains strong market share positions and has one of the largest dealer networks with more than 7,200 locations across over 190 countries.
Large customers value suppliers with big dealer networks such as CMI because they ensure their multi-million dollar equipment investments can be serviced quickly if repairs need to be made in order to minimize their downtime.
CMI has paid uninterrupted dividends since the early 1990s, and it has increased its dividend every year since 2006, making it a Dividend Achiever. Cummins last raised its dividend by 24% in mid-2015 and has increased its payout by 32% per year over its last five fiscal years.
Despite challenging macro conditions, CMI maintains a healthy payout ratio near 50%, continues generating free cash flow and is in good financial shape with less than $400 million net debt.
Cummins offers an appealing mix of yield and growth. The company’s shares have a high dividend yield of 3.41% and have strong potential to continue enjoying above-average dividend growth.
Dividend Stocks That Grow Their Payouts Like Weeds: Celanese Corporation (CE)
Dividend Yield: 2.03%
Payout Ratio: 21.9%
Celanese Corporation (CE) is a major manufacturer of materials that are primarily used in the global chemicals, paints and coatings industries.
The industrial chemical company began operations in 1918 and has number one or two market share positions across most of its businesses.
By focusing on areas where it has leading global production capacity, advanced technologies and competitive costs, Celanese has generated reliable cash flow and been a consistent dividend payer.
Celanese began paying dividends in 2005 and has increased its dividend each year since 2010. The business does not have a long enough track record to be deemed a blue-chip dividend stock, but it’s off to a good start.
The company most recently boosted its payout by 20% earlier this year and has increased its dividend by approximately 45% per year over its last five fiscal years.
Looking ahead, dividend growth should continue. Celanese maintained a low payout ratio near 20% in 2015 and has over $4 in cash for every $1 it paid out in dividends last year.
Celanese’s shares offer a dividend yield of 2% and trade for almost 10 times forward earnings estimates.
Dividend Stocks That Grow Their Payouts Like Weeds: Packaging Corp Of America (PKG)
Dividend Yield: 3.23%
Payout Ratio: 47.2%
Packaging Corp Of America (PKG) is the fourth-largest producer of containerboard in the country, and one of the three-largest producers of uncoated freesheet in North America.
The company has significantly grown its sales and earnings over the years as the industry has consolidated through acquisitions.
Packaging Corp’s revenue has nearly tripled since 2000, and its free cash flow per share has risen from $1.09 in 2005 to $4.63 last year.
While there aren’t many barriers to entry in the market and prices can be volatile, PKG has cost advantages over its smaller rivals and demand patterns are relatively stable.
Packaging Corp has paid dividends since 2003, but it cut its payout in half during the last recession. Since then, the company has increased its dividend from 60 cents per share in 2010 to $2.20 in 2015.
The company’s annualized dividend growth rate over its last five fiscal years is approximately 30%, and management last boosted Packaging Corp’s payout by 38% in early 2015.
Packaging Corp’s most important financial ratios are in reasonably good shape with a payout ratio near 50% and dependable free cash flow generation. The dividend should have room for continued growth.
The company’s shares have a dividend yield of 3.2% and trade at 14.3 times forward earnings estimates.
As of this writing, Simply Safe Dividends was long CMI in its Top 20 Dividend Stocks portfolio.