Dividend Growth Stocks
Today’s piece will focus on high-dividend-growth stocks that are yielding up to eight percent.
Before we begin, be aware that just because a stock is a high-dividend-yielding stock does not make it a dividend growth stock. Rather, the stock requires that unique characteristic of continually increasing its dividend.
There is no obligation by a company to grow its dividend. If it does so, it is likely because its revenue is growing and there is surplus cash that would not be reinvested otherwise.
There are benefits that come with investing in dividend growth stocks other than the growing dividend, which I will go into more depth about below. Also included is a list of my take on the five best high-dividend-growth stocks for May 2017.
Why You Should Consider Dividend Growth for Investments
Here below are a few reasons why you should consider dividend growth stocks in your investment portfolio.
1. Inflation Protection
A long-term concern for any investor is inflation. A dollar today does not have the same value as it does tomorrow, meaning there’s always the worry that the prices on goods and services will increase. On average, inflation is typically three percent.
One way to protect yourself against inflation is by investing in dividend growth stocks. Finding such stocks that increase with the rate of inflation help reduce or eliminate a loss in purchasing power.
2. Higher Yield on Purchase Price
When it comes to stocks that offer a dividend, there are two numbers you will want to take a look at: the stock price and the dividend yield, which represents the percentage return based on the income that will be paid out annually.
A higher rate of return is possible. Let’s say a stock is purchased at $10.00 and the annual dividend is $0.58, per share. This would represent a 5.8% dividend yield ([$0.58 ÷ $10.00] x 100%).
Using the same example, let’s say the dividend increases to $0.62 per share one year later. Now, based on the average purchase price of $10.00, the average yield would increase to 6.2% ([$0.62 ÷ $10.00] x 100%).
If this growth trend continues, the average yield, based on the price the shares were acquired at, would go higher.
3. Stock Price Support
A company that increases its dividend will attract investors that are looking for a steady and growing income and/or want to preserve their initial capital investment.
Investors will gradually bid up the share price, which will provide support to it as well, preserving the capital investment. The result should be the stock increasing and staying steady.
Below is a list of high-dividend-growth stocks that would meet all these criteria.
List of High-Dividend-Growth Stocks
| Company Name | Stock Ticker | Price | Dividend Yield |
| Seagate Technology PLC | STX |
$42.01 |
6% |
| Las Vegas Sands Corp. | LVS |
$59.26 |
4.93% |
| Cedar Fair, L.P. | FUN |
$71.61 |
4.78% |
| Tesoro Logistics LP | TLLP |
$55.34 |
6.79% |
| Great Ajax Corp | AJX |
$13.69 |
8.18% |
1. Seagate Technology PLC
Seagate Technology PLC (NASDAQ:STX) is a company that provides storage technology and solutions. Its customer base is made of both everyday customers and large corporations around the world.
The technology sector is not known for dividend growth stocks, but Seagate is an exception, with a history of shareholder payouts. Since 2012, the dividend payment has doubled, a trend which shows no signs of stopping.
The dividend continuing to increase depends on earnings. Luckily, going by past financial statements, the heads of Seagate are very focused on growing earnings.
Over the past few years, the departments that are underperforming are seeing less capital invested in them. Those receiving no capital are being shut down, with the total number of employees having decreased 20% over the past two years. The positive of this is that there will be less money put toward employee wages, with that extra cash now able to be used more efficiency.. (Source: “Fiscal Q2 2017 Supplemental Financial Information,” Seagate Technology PLC, January 24, 2017.)
In turn, capital investments are instead being allocated to divisions that are generating higher returns of investments and contributing to earnings. One example is the cloud storage computing division, which will be a major factor in the business’s future. This division’s margins are quite large compared to others within the business.
All this being said, this is the type of company that should be considered when thinking about a new investment. Seagate is willing to make adjustments to remain relevant and grow its dividend.
2. Las Vegas Sands Corp.
Las Vegas Sands Corp. (NYSE:LVS) is a developer and operator of resort properties which accommodate guests with gaming, entertainment, specialty retailers, convention rooms, and many other amenities.
The business started in the U.S., but has since shifted its priorities to Asia, specially China and Singapore. This is due to Asia’s double-digit growth, compared to single digits in the U.S., as well as higher margins. Asia currently accounts for 88% of Las Vegas Sands’ total revenue. (Source: “4Q16 Earnings Call Presentation,” Las Vegas Sands Corp., January 25, 2017.)
The growth into Asia should benefit shareholders looking for capital gain appreciation and the growth of the dividend itself. Over the past four years, the dividend has doubled; in other words, the move to Asia was the right one.
Las Vegas Sands has also engaged in share buybacks in response to believing that the shares are undervalued. The benefit for shareholders is that they will end up owning more of the company, since fewer shares existing makes the remaining ones worth more. This method is also tax-efficient, as no taxes are incurred until the shares are sold.
3. Cedar Fair, L.P.
Cedar Fair, L.P. (NYSE:FUN) is an operator of amusement and water parks across the U.S., as well as one in Canada.
Shares over the past year are up 20%, but they are still considered cheap based on the valuation. The price-to-earnings (P/E) ratio for FUN stock is 22.5 times, compared to the industry average of 47 times.
Cedar Fair also pays a growing dividend. Released on a quarterly basis and reviewed every December, the dividend has seen an increase of approximately 36% over the past four years.
Lastly, revenue and earnings have been growing. Over the last five years, revenue has grown 20% and earnings have risen 85%. This is the result of a focus on the entire business and making it as efficient as possible. (Source: “Cedar Fair L.P. Dep. Rec.,” MarketWatch, last accessed April 26, 2017.)
4. Tesoro Logistics LP
Tesoro Logistics LP (NYSE:TLLP) is a company engaged in transporting crude oil, natural gas, and produced water throughout the U.S.
TLLP stock is a unique dividend growth stock. Traditionally, such stocks are reviewed annually, but TLLP stock is instead reviewed before each payment is made. The dividend has been reviewed on a quarterly basis and has seen an increase for 24 straight payments–yes, you read that correctly.
The dividend’s annual growth is normally north of 10%. Management is not shy about rewarding shareholders as revenue increases, which also signals to the market that the company is shareholder-friendly. (Source: “Tesoro Logistics LP Dividend Date & History,” NASDAQ.com, last accessed April 26, 2017.)
The major reason for the dividend increase is strong and steady margins that support the dividend hikes. That’s because, while costs may be increasing across the business, these costs are passed to the end user of the services.
5. Great Ajax Corp
Great Ajax Corp (NYSE:AJX) is a real estate company with a focus on acquiring, investing in, and managing a portfolio of mortgages for both commercial and residential properties.
AJX stock does not have an extensive history, having only become a public company in 2015. However, this does not take anything away from the company as a potential investment. Great Ajax Corp has rewarded shareholders since going public, with a total of nine dividend payments and four increases.
The reason for shareholders being rewarded is the constant revenue growth. Over its short period of being a public company, Great Ajax Corp’s revenue has increased more than 10-fold. (Source: “Great Ajax Corp.,” MarketWatch, last accessed April 26, 2017.)
Another reason for shareholders seeing a dividend hike is the high operating margins. This metric is used to determine the measure of profitability from the business, and it shows how much money is left after paying for operating expenses, such as wages and marketing costs. The operating margins for Great Ajax Corp are much higher than the industry average, which is a plus.