For income investors, finding above-average yields from dividend stocks is good. But finding good yields and above-average dividend growth is even better.
Of course, the most ideal situation would be to find this combination in stocks that don’t jump around with every twist and turn of the market.
If you’re looking for retirement income and don’t want to sit in front of a stock screen everyday, we have seven dividend stocks to consider today.
Each of these dividend stocks is a blue-chip pick offering quality current yields, 15%-plus dividend growth over the past five years and payout ratios that ensure that payouts can keep rising in the future.
Dividend Stocks Cranking Out the Cash: Target (TGT)
Dividend Yield: 3.3%
5-Year Compound Annual Dividend Growth Rate: 20.8%
Since its 1902 founding in Minneapolis, Target Corporation (NYSE:TGT) has grown to become the nation’s second-largest retailer behind Wal-Mart Stores, Inc. (NYSE:WMT). Today, the company is a mature retailer with annual revenue growth less than 2% per year. Strong operational and financial management have produced five-year annual growth of 5.8% in EPS and nearly 10% in free cash flow. This is a very good sign Target is smoothly adjusting to its mature status.
Target is a top choice in this group of dividend stocks. It has one of the highest dividend yields at 3.3%, and the fastest dividend growth over the past five years at 20.8% per year. It’s also the least volatile with a beta of 0.52, which means for every 1% change in the market, TGT is likely to experience a price change of about half as much.
Target also has consistently increased its dividend for nearly 50 consecutive years and will join the dividend kings list soon.
A look at the future confirms Target’s potential to continue this desirable record. The annual payout of $2.40 per share represents 42% of EPS and 45% of free cash flow. Return on invested capital is 13%, and long-term-debt-to-capital is 48%. All these ratios suggest the company has the capability to keep existing stores fresh and up to date and still increase the dividend payout ratio in the future.
Dividend Stocks Cranking Out the Cash: Boeing (BA)
Dividend Yield: 3.3%
5-Year Compound Annual Dividend Growth Rate: 16.7%
If anyone has ever flown on a commercial airline in the United States, there is a good chance it was on a Boeing Co (NYSE:BA) aircraft. Commercial aircraft is the cornerstone of Boeing and represents 68% of the company’s revenues. Military Aircraft (14%), Network and Space Systems (8%) and Global Services and Support (10%) carry the rest of the revenue load. The United States Defense Department accounts for about 60% of the non-commercial aircraft business.
Boeing Co’s (NYSE:BA) annual payout of $4.36 per share offers a well-above-average yield of 3.3%, the highest yield in the group. Dividends have been growing 16.7% per year on average over the past five years and 27.4% per year over the past three.
Free cash flow is the key measure for a heavy industry company like Boeing. Boeing’s FCF payout is a low 34%, indicating there is ample room for continued dividend increases. Boeing’s stock is a prominent member of the Dow Jones Industrial Average and S&P 500 and is the type of company we like to own in our Top 20 Dividend Stocks portfolio.
Boeing’s operating margins of 7.9% are about average for a heavy manufacturing business. Return on invested capital and equity are very strong at 34% and 81%, respectively. And these returns have been achieved without excessive leverage. Long-term debt is a reasonable 58% of total capital.
Dividend Stocks Cranking Out the Cash: Union Pacific (UNP)
Dividend Yield: 2.4%
5-Year Compound Annual Dividend Growth Rate: 27.2%
All the way back in 2010, investor Warren Buffett shelled out $26.5 billion to acquire Burlington Northern Santa Fe. Every bit of evidence says that the deal has been a big success.
If you agree, you might want to look at Union Pacific Corporation (NYSE:UNP). UNP is the other big railroad line in the West next to Burlington Northern.
Union Pacific owns more than 32,000 miles of track. This rail network connects customers on the Pacific and Gulf Coasts with the Midwest and eastern U.S. Virtually any and every commodity from agriculture, and chemicals, to finished goods such as autos and parts and many more can be transported to market through UNP. Union Pacific benefits handsomely from the production of shale oil and with the recent rise in drilling activity in this area, demand is rising.
Despite being a capital-intensive railroad operator, UNP is surprisingly profitable with excellent cash flow that allows the company to grow dividends rapidly. Operating margins are 37%, and the company generated nearly $3 billion in free cash flow last fiscal year. Over the past three years, dividends have increased 20.7% per year. During this period, management also put $9 billion into stock repurchases. Shareholders certainly have been rewarded.
The current annual payout of $2.20 per share offers a 2.4% yield. Maintaining Union Pacific’s above-average dividend growth is a good bet. Consensus estimates point to a 13% annual earnings growth in the years ahead. This, along with a gradually rising dividend payout ratio from the current 49% of EPS, appears reasonable.
Dividend Stocks Cranking Out the Cash: Microsoft (MSFT)
Dividend Yield: 2.5%
5-Year Compound Annual Dividend Growth Rate: 18.6%
Since the days of the floppy disk, Microsoft Corporation’s (NASDAQ:MSFT) Windows has been the dominant operating systems for personal computers. Microsoft applications, Word, Excel and PowerPoint and the Internet Explorer form a stranglehold on the PC market. In recent years, this group has represented 98%-plus of Microsoft’s income.
Software is hugely profitable. Gross margins equal 95% on the Windows operating system. Software overshadows everything Microsoft does. The hugely successful Xbox has over $1 billion in sales and could be a standalone company. But it represents less than 1% of the Microsoft empire.
MSFT offers a strong combination of dividend safety, growth, and yield. The balance sheet holds more than $113 billion in cash, operating margins are traditionally 25%-30%, and long-term debt is only about one-third of total capital. Last fiscal year, MSFT generated $25 billion in free cash flow.
The annual $1.44 per share payout offers investors a 2.5% yield with dividends compounding at an 18.6% annual rate over the past 5 years. The quarterly dividend of 36 cents per share was last increased in November 2015. The next increase is likely to reach 42 cents per share in November of this year. This would raise the prospective yield to 2.9%.
Dividend Stocks Cranking Out the Cash: Simon Property Group (SPG)
Dividend Yield: 3%
5-Year Compound Annual Dividend Growth Rate: 18.4%
Founded in Indianapolis, Simon Property Group Inc (NYSE:SPG) is a globally focused real estate investment trust (REIT). To avoid paying federal taxes at the corporate level, REITs are required to payout at least 90% of taxable income to shareholders.
The company earns it way from rents and other income on properties it owns. Simon’s business is built around the use of operating leases. This type of lease provides for base minimum rents as well as percentage rents based on tenant sales volumes and certain other expenses such as taxes, repairs, maintenance, advertising and promotional outlays.
Simon’s U.S. portfolio consists of 108 malls, 71 Premium Outlets, 14 Mills and 16 other retail properties located in 37 states and Puerto Rico. Internationally, approximately nine retail properties are located principally in Canada, Europe, Japan and Malaysia.
The annual $6.60 per share payout offers investors an above-average 3% yield. While its dividend growth streak isn’t perfect, SPG has paid dividends for more than 20 consecutive years.
In the past five years, SPG has recorded a compound annual dividend growth rate of 18.4%. Simon Property’s high 50.7% operating margins suggest that long-term growth of dividends can continue as the company continues generating nice cash flow.
Dividend Stocks Cranking Out the Cash: Lockheed Martin (LMT)
Dividend Yield: 2.5%
5-Year Compound Annual Dividend Growth Rate: 18.4%
Defense spending growth has slowed in recent years, but that has not stopped Lockheed Martin Corporation (NYSE:LMT).
Lockheed is the world’s largest defense contractor based on their position in security and aerospace. LMT researches, develops and manufactures advanced technology services primarily for the U.S. governments (80%) and certain foreign military organizations (20%). The main focus of Lockheed’s activities is in defense, space, intelligence, homeland security and IT related to cyber security.
The defense industry has extremely high barriers to entry. Becoming approved for bidding on government contracts is difficult and time consuming. For more than 30 years, the industry has consolidated into 10 or more larger entities and many small specialty suppliers.
Over the past five years, income has increased an average 9.4% per year. Operating margins of 11.8% are at least average for the industry. The annual payout of $6.60 per year offers an above average yield of 2.5%. The company pays out only 40% of FCF. The quarterly dividend was last increased in November 2015. An increase to $1.90 per share this upcoming November would be in keeping with past practices and offer a prospective yield of 3.3%.
Dividend Stocks Shelling Out More Cash: Schlumberger (SLB)
Dividend Yield: 2.5%
5-Year Compound Annual Dividend Growth Rate: 18.9%
A truly global company, Schlumberger Limited. (NYSE:SLB) employees 95,000-plus people in over 85 countries. Roughly 75% of business is sourced outside of North America.
To many investors, Schlumberger is an oil company. In reality, it is a technology company supplying project management software and information solutions to companies involved in the search for oil and gas. When viewed as a technology software and service company, reliable dividend yield and growth logically follow.
The current $2.00 per share annual payout offers investors a 2.5% yield. Dividends have grown at a healthy 18.9% compound average rate in the last five years. The Free Cash Flow Payout Ratio of 49% gives the clearest picture of liquidity as EPS was hit last year by certain non-cash charges. While the slump in energy prices is weighing on the business, Schlumberger’s cash balance exceeds $11 billion, and its modest payout ratio also provides some cushion.
As a note: SLB is indirectly affected by crude oil prices. The extended oil price decline in 2015 is documented in the six consecutive quarterly revenue declines since 2014. However, SLB’s free cash flow has remained strong, averaging approximately $5 per share.
The bounce in oil prices since the beginning of 2016 is helping the outlook for future revenues. Since its 1926 founding in Paris, Schlumberger has succeeded under less-than-optimal conditions and this time around, their financials continue strong.
As of this writing, Simply Safe Dividends was long BA and UNP.