I wanted to find an ideal list of stocks with high dividend yields. The stocks would have to be cheap as well. And the dividends would have to have a history of growth. Lastly, the company would have to be able to afford the dividends.
In earlier articles like this, I found stocks that met two or three of these four criteria about dividend stocks. But this time I wanted to see if there were any stocks with all four of these criteria. I feel that these four criteria help the investor know that the dividend is both relatively safe and reliably consistent. Moreover, the investor would not be paying extra for that safety and stock dividend growth.
Keep in mind that the average dividend yield of the S&P 500 is 1.9%. The median price-to-earnings ratio is 14.8x and the average payout ratio is 35%.
As for dividend growth rates, there are not a lot of studies. One analyst found that over 51 years, the average dividend growth rate was 5.4%. Therefore, I decided to set the minimum rate of growth at better than 5.4% over a five-year period.
I also felt that I would not find stocks with better than the average payout ratio. A 35% payout ratio would be too low a hurdle with these high dividend yield stocks. So as long as the payout ratio was not worse than 70%, the stock would be deemed worthy. It would seem that at that rate the company could still afford the dividend.
Here are five high yield, fast-growing dividend stocks that meet these criteria.
Dividend Stocks to Buy: Broadcom (AVGO)
Dividend Yield: 3.7%
5-Year Dividend Growth: 55.1%
Price-to-Earnings Ratio: 13.6
Payout Ratio: 50%
Broadcom (NASDAQ:AVGO) is a semiconductor company that makes a variety of chips used in data centers, set-top boxes, telecom equipment and smartphones. Earnings have been growing consistently and have beat market expectations.
Broadcom stock trades at a low 13 times price-to-earnings ratio and has a 3.7% dividend yield. AVGO pays out about half its earnings in dividends. Broadcom’s dividends have been growing consistently at a high rate over the past three years (+74%) and five years (+55%). Look for AVGO stock to follow this consistent trend. Broadcom’s earnings should do well over the next telecom cycle as 5G equipment begins to roll out.
Goodyear Tire & Rubber (GT)
Dividend Yield: 3.9%
5-Year Dividend Growth: 63.3%
Price-to-Earnings Ratio: 10.7
Payout Ratio: 41.2%
Goodyear Tire & Rubber (NASDAQ:GT) stock has a very nice dividend yield and growth history. Goodyear sells its own brand of tires worldwide along with private label brands. The company also has over 1,100 tire and auto-service center outlets that offer repair services and products.
Goodyear’s basic products are always in demand as tires need constant replacement. But it makes more money when car sales increase. Fears of an economic slowdown have kept Goodyear stock cheap. Nevertheless, given the constant demand for tires, Goodyear has the ability to withstand a slowdown in GDP growth.
New car tire sales and international tire sales make up the majority of its revenue. Volumes in new cars have been falling so its original equipment manufacturer sales volume has been dropping. Operating margins have been also hit by two new plants.
This is a cyclical stock. The long-term investor will take advantage of this situation and buy GT stock while it is cheap.
Dividend Yield: 3.8%
5-Year Dividend Growth: 36%
Price-to-Earnings Ratio: 9.1
Payout Ratio: 34.3%
Hanesbrands (NYSE:HBI) stock is too cheap. It sells innerwear and active-wear clothes, including its own fast-growing Champion brand. Analysts put the company’s forward earnings at $1.76 and argue that Hanesbrands stock is cheap given its growth. Its active-wear product lines, in particular, are growing over 10% annually.
Near $16 per share, Hanesbrands stock is trading at about 9 times earnings. HBI stock has a nice 3.8% dividend yield, which is over twice the market average. Its payout ratio (dividends/earnings) is only 34% of earnings, which is below the market average.
Hanesbrands stock has grown its dividend nicely at 36% over the past five years. This looks to be a good long-term holding for investors over the next five years.
Hanmi Financial (HAFC)
Dividend Yield: 5.3%
5-Year Dividend Growth: 47%
Price-to-Earnings Ratio: 13.1
Payout Ratio: 69.2%
Hanmi Financial (NASDAQ:HAFC) stock is a relatively cheap Los Angeles-based bank with 39 full-service branches and nine loan offices in a number of states. It has specialized in serving the Korean-American community in the United States.
Hanmi Financial’s market capitalization is $580.5 million. Dividends have grown very healthily over the past five years.
HAFC has been growing earnings consistently since 2014 when it made $50 million in net income. This year analysts expect the bank to make $63 million. As a result, the dividends per share have grown 47% over that period, from 28 cents per share to 96 cents per share this year.
At 1 times book value and 13 times earnings, the stock is still reasonably cheap. Given its consistent earnings and dividend growth rates, Hanmi stock looks to be a good long-term holding for patient investors.
Heritage Commerce (HTBK)
Dividend Yield: 4.2%
5-Year Dividend Growth: 49%
Price-to-Earnings Ratio: 11.5
Payout Ratio: 48.2%
Heritage Commerce (NASDAQ:HTBK) is a California-based bank with 14 branches in the southern and eastern regions of the San Francisco metropolitan area. HTBK’s market cap is $700 million. Heritage has had consistent earnings and dividend growth. It is a commercial bank providing loans mainly to corporations.
HTBK stock offers a high 4.2% dividend yield, a low 11.5 P/E and a dividend that has grown 49% in the past five years.
Heritage agreed to a merger in May 2019, but it was really an acquisition by Heritage. At the time HTBK acquired Presidio Bank, an underperforming bank. The merger received approvals from regulatory authorities and will close in the fourth quarter.
The company was originally formed as a merger. I expect Heritage’s management will continue to make acquisitions and mergers to grow its asset and deposit base. Over the long term, Heritage stock should continue to do quite well.
As of this writing, Mark Hake did not hold any of the aforementioned securities.