The dividend stocks that investors like most do two things: They pay ample dividends to their shareholders, and they increase the amount that they pay consistently over time. The truly best dividend stocks go a step further, making dividend boosts a habit that investors can bank on year in and year out.
Once dividend stocks get a reputation for excellence, they generally like to keep it. It's not a sure thing, but that desire to keep up their streaks should give Medtronic (MDT 0.95%), Caterpillar (CAT 0.39%), and General Mills (GIS -1.05%) the incentive they need to reward their shareholders with a higher quarterly payout within the next month.
Banking on medical devices
Medical-device maker Medtronic has a strong reputation among dividend investors, and it has the longest streak of annual payout increases among these three stocks. The company currently yields 2.3%, and it's made dividend hikes for 40 straight years. Last year's dividend raise of 7% got paid out to shareholders in late July, with the company having announced the imminent increase on June 23. That pattern extends back for years, with declarations of higher dividends typically coming in mid- to late June.
Image source: Medtronic.
Medtronic has combined solid dividend growth with fundamental success in its core business in recent years, joining the race to integrate new technology into its lineup of medical devices. The company has been known for years for a wide range of devices, with a special emphasis on cardiovascular and cardiac rhythm products, including heart valve, pacemakers, and defibrillator systems. Yet many now expect Medtronic to move more aggressively toward the robotic surgical industry, with the hopes of using both its internal development teams and key partnerships with outside partners to develop a surgical system and stake out new claims in key niche areas. With groundbreaking medical technology in high demand, Medtronic has tapped into a growth opportunity that could help accelerate dividend increases in the near future.
Digging for dividends
Caterpillar stands on the precipice of an important milestone for its stock. With 24 years of consecutive higher annual dividends paid, 2018 could be the year that the construction equipment specialist gains entry to the prestigious Dividend Aristocrats. A 2.1% dividend yield stands to improve if the company moves forward with a boost consistent with its timing in past years.
Many investors seem worried about Caterpillar, though, despite impressive recent performance. After a long slump related to weaker activity in the construction, energy, and mining industries, Caterpillar has finally started to see strong revenue and profit growth, and it boosted its full-year guidance in its most recent quarterly report. What nervous shareholders have focused on, however, are Caterpillar's warnings about rising raw materials costs that go into the equipment that it manufactures. That's driven the share price lower even though the rising price environment for key commodities should also push demand for Caterpillar equipment even higher.
Caterpillar's dividend increase last year came on June 14, and all of the construction equipment maker's boosts to its payout over the past decade have come at that time of year. The one concern to have is that Caterpillar has sometimes skipped increases, as it did in 2016, counting on the midyear timing of its boost to produce a technical increase in total annual dividend payments compared to the previous year. But with the Dividend Aristocrats watching, it's more likely that Caterpillar will want to make a good impression by being more generous with its shareholders.
Let this stock feed your need for dividends
Finally, General Mills doesn't have quite the same track record of dividend increases as its peers within this group of three stocks, but it's well on its way. For 15 straight years, the food giant has given investors increased payouts annually. General Mills also stands out because it hasn't always focused on the mid-year time frame for dividend hikes, having shifted from its more typical first-quarter boosts back in 2016 when it made a rare move in increasing its payout in two quarters in a row. The company has by far the best yield of these three, with its 4.4% dividend doubling the yields of Caterpillar and Medtronic. It's expected to announce its quarterly earnings results late next month, and that's usually been the forum to let shareholders know what's coming on the dividend front.
General Mills is also dealing with some fundamental business difficulties. Its exposure to the packaged foods industry has run contrary to recent consumer preferences, which have emphasized healthier fresh food offerings over the cereals that the company is best known for. Moves like General Mills' recent $8 billion purchase of Blue Buffalo Pet Products show its willingness to make major efforts to shore up its growth opportunities. But higher costs could hurt profitability, and although the food giant has plenty of spare earnings and cash flow to finance higher dividend payments, improving the long-term trajectory of the underlying business will require further strategic shifts to keep up with changes in what grocery shoppers want.
Look for bigger dividends
Dividend increases are never a sure thing, but some companies make them fairly predictable. If you like dividends, you should watch for General Mills, Caterpillar, and Medtronic to reward their shareholders with higher payouts, and you can decide whether the opportunities and risks each faces make them worthy of a place in your own investment portfolio.
