To paraphrase Cousin Eddie in National Lampoon's Christmas Vacation the dividend shares are the gifts that continue to give. It's great to have a share that pays you to own it. Even better is a dividend stock that gives investors nice increases on a regular basis by increasing the dividend payout.
But what if you could find attractive dividend stocks with dividends that could double over the next few years? The good news is that you can. Here's why Bank of America (NYSE: BAC) Oracle (NYSE: ORCL) and UnitedHealth Group (NYSE: UNH) stands out especially as likely candidates.
1. Bank of America
Bank of America's dividend yield currently stands at just over 2%. But over the past five years, financial services have not just doubled the company's dividends; it has tripled . During this period, Bank of America's stock price has almost doubled.
Bank of America should have no problem with continuing to increase its dividend, and potentially even double it over the next few years. The company's dividend share is low 21.35%, which indicates plenty of financial flexibility to increase the dividend payout.
Shareholders should also be rewarded in another important way. Bank of America authorized a huge $ 30.9 billion share buyback over the next 12 months. While $ 0.9 billion of this amount will be new shares to offset stock-based compensation prices, $ 30 billion will reduce the total number of shares outstanding. This buyback represents an "invisible dividend" that will directly benefit Bank of America shareholders.
Technology companies are generally not known for dividends. But the Oracle database giant offers an attractive yield of nearly 1.7%. Over the past five years, Oracle's dividend has doubled while the share price has increased more than 40%.
Oracle appears to be in good shape to potentially double its dividend again in a few years. The payout ratio is only 27.3%. And Wall Street analysts estimate the company will increase revenues by more than 9.4% annually over the next five years. If their estimates are correct, Oracle should have plenty of extra money to spend on the dividend program.
The tech giant has also bought back 25% of the stock in the last five years. Some believe Oracle has used these stock purchases to "buy revenue" to please investors. However, others believe that the company's slow and steady operations can be quite appealing to revenue-seeking investors.
3. UnitedHealth Group
Like Oracle, UnitedHealth Group's yield is just under 1.7%. The dividend of the major health business increased by 188% over the last five years. The stock performed even better, almost tripling over the period.
Can UnitedHealth Group keep dividend increases? Probably so. The company currently uses only 28.4% of its revenues to finance the dividend program. Analysts believe that UnitedHealth Group will be able to grow revenues by almost 14% annually on average over the next five years.
UnitedHealth Group should see solid growth in Medicare and retirement life as Americans age. Its status as the largest health insurance company makes the company's products known to many potential buyers of health insurance. In addition, UnitedHealth Group's Optum businesses, which provide health management, health technology and pharmacy benefits (PBM) services, should also continue to grow strongly.
A Few Risks
These potential dividend doublers have a few risks. Bank of America could be harmed if the economy nosedives and individuals default on loans higher than expected. Oracle faces challenges from other major database providers, as well as future open source database companies. The UnitedHealth Group would be seriously injured if the United States implements a single-payer healthcare system that drastically reduces the need for private health insurance.
So far, all three stocks appear to be in fairly good shape to continue to grow. And they should all keep the dividend increases on track – just as Cousin Eddie probably will.