If you're looking to set yourself up in 2017 with a few investments positioned to not only pay you a dividend but also to increase it, Nike (NKE -0.74%) and Walt Disney (DIS -1.01%) are two great stocks likely to do exactly that. Even more, these two stock picks look set to increase their dividends for years to come.
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Here's why these two stocks are poised to serve dividend growth in 2017 and beyond.
Big dividend hikes in the past
One reason to believe these stocks will increase their dividends in the coming years is simply because this is exactly what they are doing already. During the past five years, Nike's and Disney's dividends have increased at compound average annual growth rates of 16% and 19%, respectively.
Furthermore, the two companies' most recent dividend increases continue to highlight an appetite for dividend growth. Nike recently announced a 14% year-over-year increase in its dividend and Disney's most recent dividend increase represents about 8% year-over-year growth.
More to come
Going forward, there's no reason either company can't continue to increase its dividend at meaningful rates. Their low payout ratios, or the percentage of earnings a company is paying out in dividends, mean they can even hike their dividends if earning growth stalls. Nike and Disney have payout ratios of just 22% and 25%, respectively.
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In addition, their earnings growth looks capable of easily supporting future dividend increases. Nike's earnings per share (EPS) is up 12% in the trailing 12 months. In this same period, Disney's EPS is up 17%. And, going forward, analysts expect EPS to continue growing rapidly; on average, analysts expect EPS to increase 12% and 10% annually over the next five years at Nike and Disney, respectively.
Low dividend yields, for now
While their dividend growth prospects are pretty much undeniable, the two stocks do fall short on one key metric many dividend investors care about: They have fairly low dividend yields of 1.4%, well below the average dividend yield of about 2.1% for companies in the S&P 500.
But in light of these two companies' recent dividend increases and earnings growth, along with their low payout ratios, investors looking for income may want to consider jumping in on these stocks despite their low dividend yields. Over time, investors who buy these stocks today will likely see their dividend payments rise substantially as a percentage of their cost basis.
Beyond dividends, these stocks are solid as buy-and-hold investments, too. Nike and Disney are both long-standing market leaders in their respective segments and have a proven history of consistently delivering value for shareholders. Both stocks have also sold off during the past 12 months, presenting investors a buying opportunity. Nike and Disney stocks are down 25% and 15%, respectively, during this period.
Overall, Nike and Disney represent excellent buying opportunities for investors looking for stocks likely to both appreciate in value and pay increasing dividends for years -- and probably decades.
