Dividends don´t only provide income for shareholders, strong dividend growth can be a powerful signal about fundamental health and management confidence in the future of a business. CVS (CVS -1.07%), Disney (DIS 0.18%) and Apple (AAPL 1.27%) are delivering big dividend increases for investors, and they have the quality and financial soundness to continue raising distributions for years to come. This simple fact makes each of these companies worth a closer look by Foolish investors looking to supercharge their portfolios.
CVS for healthy dividend growth
CVS operates in two different but related business segments, the company is one of the largest U.S. pharmacy retailers and also a leading pharmacy benefit manager. Vertical integration provides diversification and multiple growth venues for the company, and it also produces negotiation and scale advantages for CVS versus smaller players.
The company is major beneficiary from growing health care demand due to secular tailwinds like demographic trends, technological advancement in the health care industry and the expansion of medical insurance coverage over the coming years.
The company reported third-quarter earnings on Nov. 5, and the business is clearly enjoying good health. Revenues in the pharmacy services segment increased 7.8% to $19.5 billion during the quarter and the retail pharmacy division delivered a 5% increase in revenue to $16.3 billion. CVS produced an increase of 23.9% in adjusted earnings per share to $1.05, beating analysts' estimates for the quarter of $1.02 per share.
CVS has consecutively increased dividends over the last ten years, including a big raise of 38% announced in December of last year. The company has a very comfortable payout ratio in the area of 23% of earnings, this leaves plenty of room for further increases considering the company´s competitive strengths and the tailwinds fueling the business in the long term. CVS pays a 1.3% dividend yield.
Magic dividends from Disney
Disney benefits from its tremendously valuable intellectual property which sets it apart from the competition. The company owns brands like ABC, ESPN and Pixar among others, and it has the rights to profit from an amazing portfolio of fictional characters, including world famous names like Mickey Mouse, Tinker Bell, Winnie the Pooh, Pocahontas, Nemo, Hulk, Spider-Man, and Darth Vader among countless others.
Disney has the ability to monetize its characters and franchises across multiple platforms: movies, shows, home videos, theme parks, merchandising etc. This provides a lot of leverage when it comes to making money from its properties, and it´s an unparalleled advantage in the media and entertainment industry.
The media networks segment brings in almost 70% of operating earnings, and ESPN is a key strategic asset in that area. The worldwide leader in sports programing is protected by the expensive long-term contracts it has signed with major sports leagues and associations around the planet. It would be tremendously hard for competing networks to replicate this kinds of deals, and this is another factor making Disney a unique company in the industry.
Disney announced a big increase of 25% in its annual dividend on Nov. 28 of last year, so further dividend increases will likely be announced quite soon. Disney has a safe payout ratio around 22% of earnings and the stock is yielding 1.1% based on current distributions.
iDividends from Apple
Apple is not typically considered a dividend growth play due to its relatively short dividend history: the company reinstated its dividends in 2012 and raised them 15% in 2013. But investing is about the windshield, not the rearview mirror, and Apple has both the fundamental strength and financial resources to continue delivering big dividend increases for shareholders in the long term.
The company owns the most valuable brand in the world according to Interbrand, and Apple is reaching the crucial shopping season with a completely renewed line of products. The years of ultra-rapid growth for the company may already be in the past, but Apple is still the high-end leader in smartphones and tablets. Product quality and brand differentiation are not only big competitive strengths, but also an important source of pricing power and above average profitability for shareholders.
In addition to having almost $147 billion in balance sheet cash and liquid investments, the business generates tons of money on a regular basis. Apple produced more than $53.6 billion in cash flows from operations over the last 12 months, and investments in fixed assets absorbed only $8.2 billion of that money. This allowed Apple to allocate almost $10.6 billion to dividends and $22.9 billion to share repurchases in the last year.
Apple is paying a 2.3% dividend yield at current prices, and the company has a comfortable dividend payout ratio around 29% of earnings which leaves ample room for dividend increases in the coming years.
Bottom line
Cash does not lie, growing dividends are a transparent sign of improving fundamentals and management confidence in the future of a company. CVS, Disney and Apple, are not only delivering big dividend increases for shareholders, they also have what it takes to sustain dividend growth over time. Investors looking for high quality companies for their portfolio may want to consider these three rock-solid names with strong dividend growth prospects.
