Are you looking for a solid dividend stock you can hang on to for years? One factor that you shouldn’t overlook when picking an income investment is whether a company raises its dividend payments. Without regular increases, inflation will chip away at the distributions over time.
Three dividend growth stocks with strong track records that you should consider for your portfolio today are Cardinal Health (NYSE:CAH), Telus (NYSE:TU), and PepsiCo (NASDAQ:PEP). All three raised their payouts last month and future rate hikes are likely.
1. Cardinal Health
Cardinal Health has increased its dividend payments for 30+ years and falls into the category of a Dividend Aristocrat. On May 6, when the company released its third-quarter results, it also announced that it would be raising its quarterly dividend payments by 1%, from $0.4859 to $0.4908 per share. With the increase, the stock is now yielding 3.5% — well above the S&P 500 index average of just 1.4%.
Although a 1% hike might seem minimal, with an above-average yield, a company is less likely to make large hikes to an already strong payout. What’s important is that its dividend payments remain stable. And with a payout ratio of just 50%, Cardinal Health is in good shape to continue making payments and increasing them in the future. With an impressive streak going, the healthcare company is unlikely to stop hiking its payouts anytime soon.
Cardinal Health’s future looks stable as it provides its customers with essential healthcare products and pharmaceuticals. And while sales of $39.3 billion were flat in Q3 and may have been disappointing, the company was going up against a strong prior-year period where consumers were loading up on pharmaceuticals during the early stages of the pandemic (the quarter covers the first three months of the year).
Investors shouldn’t expect big growth numbers from this stock, but what they can likely rely on is a stable and growing dividend. Cardinal Health a great investment if your priority is recurring income.
Telecom provider Telus also announced a rate hike as it was reporting its earnings results on May 7 for the period ending March 31. Unlike Cardinal Health, it did generate some solid top-line growth with operating revenue of 4 billion Canadian dollars, up 8.9% year over year. The company continued to grow its customer base while maintaining an incredibly low churn rate of less than 1% in its mobile phone, Internet, and TV segments.
With the strong performance, the company felt comfortable making a generous 8.6% increase to its dividend payments, which are now CA$0.29125 per share every quarter. Its yield of 4.6% is the highest on this list, and it’s rare to see this level of increase given its impressive payout. However, the company plans to make 7% to 10% annual hikes until at least the end of 2022, so another big increase could be coming next year. Telus isn’t a Dividend Aristocrat, but it has been increasing its dividend payments since 2004, in some cases making more than one hike per year.
Although its payout ratio is a bit higher at 81%, with a strong track record and a stable business, Telus is another solid income stock to hang on to for the long term.
PepsiCo has the longest dividend growth streak of the stocks listed here. When it announced a 5% hike to its payouts on May 4, it marked the 49th year in a row in which shareholders would be receiving more in recurring income than the previous year. If it makes another increase to the payouts next year, the stock will become a Dividend King. The soft drink maker now pays $1.075 per share every quarter, which yields 2.9%. Its payout ratio of 75% is manageable and shouldn’t raise any alarm bells.
For the 12-week period ending March 20, the company’s net revenue of $14.8 billion rose 6.8% year over year; profits jumped 28% to $1.7 billion. Although PepsiCo generated organic growth of just 3% in its key Frito-Lay North America segment, its operations in other parts of the world helped boost its results. In the Asia Pacific, Australia, and New Zealand and China region, organic sales grew by a whopping 18% and were the only area where growth was in double digits. PepsiCo’s vast geographical operations make it a strong and stable business to invest in.
What’s encouraging is that PepsiCo might do even better now as the economy opens back up. For the full year, the company is projecting mid-single-digit growth in organic revenue.
PepsiCo is a great stock to buy if you are bullish about the economy’s future and an even better one if you need an investment you can count on for some recurring income.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.