As investors, we all love our dividends. But what's even better? Dividends that grow and grow consistently over the long term.
And while dividend investors should, of course, take into account today's return on a stock to assess its growth potential, investors should look at today's payout ratio from retained earnings, a company's ability to increase earnings per share over time, and management's policy on allocation of capital. All of these factors will determine the overall health of the business and, by default, the dividend's health.
If you are looking for solid dividend stocks to buy and hold in the long term, here are five in five different industries that could double the dividend in the years to come.
Payout ratio: 13%
A true definition of a value stock may be Oshkosh ( NYSE: OSK) which makes (very cool) heavy industrial vehicles such as aerial work platforms to access vehicles, SUVs, fire engines and other emergency vehicles, and utility vehicles such as concrete mixers and garbage trucks.
This diversified portfolio is of utmost importance to Oshkosh, as the acquisition of heavy equivalents ipment can be a bit cyclical. Currently, investors are afraid of a decline in the company's access equipment segment, which accounts for about half of Oshkosh's sales. This is not only due to macroeconomic concerns, but after the very strong recent years of access vehicle sales, the current fleet is relatively new and thus the appetite for upgrades can be dampened next year.
However, at the moment, the rest of Oshkosh's business appears to be relatively consistent and strong. In addition, the management has a great long-term track record, and the company was recently awarded the Glassdoor "Best Places to Work" award for 2019.
It does not seem like a company that should trade with only 9.3 times earnings. Fortunately, Oshkosh's management is taking advantage, targeting $ 350 million in share buybacks this year. Oshkosh has lowered its overall stock count by about 6% over the past 12 months, and it looks like these good cash returns will continue. More share repurchases in the quarters and years ahead mean a lower share, and thus more room to increase Oshkosh's dividend, which accounts for only 13% of revenues.
Consumer Discretion: Starbucks
Payout Rate: 50.1%
While You May Not Think About Starbucks (NASDAQ: SBUX) as a traditional dividend stock, it has become one over the last two years. As part of a recent business simplification initiative, the company sold all businesses outside the United States and China. This included sales of the package business to Nestle which brought in a cool $ 7.1 billion, and the non-owned stores of master franchisees.
After selling these assets, Starbucks plowed the money into major stock repurchases, then increased its dividend by 20% in 2017, with another 20% increase in 2018. And yet, I still think Starbucks' dividend can double over the next decade, despite these recent increases.
The company has historically raised its dividend around November, or the time of fourth-quarter revenue, so investors will increase fairly soon. And even though the company is not growing as it was in the previous decade, management still believes it can achieve a "long-term" double-digit EPS growth rate.
Even with no increase in the payout ratio in Starbucks, an annual dividend increase of 10% – in line with EPS – would allow Starbucks dividend to double in around seven years. While the stock is not particularly cheap today after a good run in 2019, the company's leading brand and resilient business still make the stock a solid range of dividends.
Tech: Applied Materials
Payout Rate: 25.8%
Applied Materials (NASDAQ: AMAT) is the leading production equipment for semiconductor products by revenue. The company creates etching and deposition equipment and inspection tools needed to produce semiconductor chips, from advanced processors to memory chips to advanced displays.
Not only is the payout rate for Applied Materials just a hair over 25%, which means it has room to grow, but this ratio comes during a "down" year for semiconductor equipment, which can be quite cyclical. In fact, Applied Materials & # 39; earnings per share for the full quarter fell a full 40%. This means that the company's current payout ratio based on more "normalized" revenues is likely to be even lower.
There is also reason to believe that next year will return to growth. First, we are already well into a downturn in the memory industry, which many analysts believe is poised to be positive by 2020. When growth in memory demand returns, so does equipment purchases from Applied's customers.
In addition, all indications are that 5G deployments accelerate faster than initially anticipated, which should require more advanced pieces and therefore more Applied Materials equipment. Applied also recently announced the acquisition of Kokusai Electric, a Japanese company with complementary products that Applied's management believes will be immediately accredited for earnings per share.
With Applied Materials & # 39; low current payout ratio and the long-term need for more and more advanced chips, the company's dividend appears to be destined to go no further but upward in the years to come.
Financials: JPMorgan Chase  Yield: 3.12%
Payout ratio: 32.65%
To be honest, it was difficult to choose a financial company out of the big US banks because most of them are screaming cheap at the moment and ready for dividend growth. Why did I choose JPMorgan Chase (NYSE: JPM) ? Probably because of the "growth" part of the equation.
JPMorgan has the top franchise in the United States as the United States largest money center bank, but that does not mean that it still cannot grow. In fact, JPMorgan announced a major expansion of 90 branches in 2019 to nine new US markets, mostly in the Southeast, Midwest and Pennsylvania.
It doesn't seem like a company that is worried about being too big to grow. And yet, JPMorgan trades stocks with just 12 times earnings, despite EPS increasing by a full 23% last quarter, driven by a combination of a 16% increase in net income, along with ample share buybacks.
Banks have generally been sold off this year due to fear of the yield curve, which has flattened out lately and may very well shrink the bank margin in the coming quarters. It can also lead to an economic downturn.
However, there is no guarantee that a recession will happen, and even if one does, JPMorgan has very high capital ratios compared to 2008, which should act as a buffer. In fact, JPMorgan did not need to take government control in 2008, but agreed to do so to maintain the confidence of the other banks that needed it.
JPMorgan's security, growth profile and leading technology investments should all help boost revenue growth in the future. Combined with share repurchases at these low prices, more dividends are likely to increase in the years ahead.
Mining and Energy: Cleveland-Cliffs
Payout Rate: 5.1%
The Leading American Iron Ore Mine for Pure Play Cleveland-Cliffs (NYSE: CLF) just became a dividend stock in the fourth quarter of 2018, when it was reintroduced after dividing it many years ago to avert potential bankruptcy.
Obviously the company is in a much better place today. CEO Lourenco Goncalves, who took over in 2014, sold all of Cleveland-Cliff's non-US and non-iron ore mines acquired by former management, then repaid debt and doubled the company's major US properties.
It helped strengthen the company's balance sheet, and Cleveland now has long-term contracts with major US steelmakers, which will keep the company profitable for most parts of the cycle and have manageable losses (or even no losses) in the event of a severe loss. downturn.
While Cleveland-Cliffs is actually benefiting from the tariffs imposed on Chinese imports in 2018, which pushed US steel prices up, the ongoing trade war and fear of a downturn have led to prices falling recently. This has pushed Cleveland's share price and return up to over 3%.
And yet, not only did management increase its quarterly dividend by 20%, from $ 0.05 to $ 0.06 per share, less than a year after reintroducing it, but it even allows an additional dividend of 0, $ 04 per share, payable to shareholders in record October 4 (excluding dividend date October 2). Insiders have also bought shares in the recent past, which certainly shows confidence in the face of falling prices for steel and iron ore.
What is management so confident about? Probably the company's new hot briquette iron plant (HBI) that it is building in Ohio, which should be completed by the first half of 2020. Once built, Cleveland-Cliffs will be able to produce a more advanced, high-margin product for newer electric arc furnace steel manufacturers. This should help strengthen the company's margins next year and provide a continuous cash flow in the future.
At a recent industry conference, Goncalves said that when the HBI facility is completed and the company reaps the benefits, he will look to increase the company's dividends, or perhaps even initiate more special dividends, as he does not expect to build several hundreds more million dollar facility under the Ohio plan. Such shareholder-friendly actions should be music to investors' ears.