When it comes to dividend investing, bigger yields aren't always better. Instead of zeroing in solely on yield, savvy investors like billionaire Ken Fisher are on the hunt for companies that back and boost their dividends. Here are three of Fisher's favorite dividend stocks that do just that.
Home Depot's (NYSE:HD) reliance on the housing industry hurt it substantially during the Great Recession. From early 2007 through the end of 2008, Home Depot's stock was down nearly 44%. But the retailer benefited tremendously from the long-anticipated upswing in the housing market. Whether homeowners were making improvements or homebuilders were buying supplies, Home Depot profited from the increased demand. Its stock posted a nearly 50% return in 2013, making it one of that year's best-performing stocks. However, recent new-home sales figures point to a softening in the real-estate market, which would pose a big problem for Home Depot investors like Fisher. But Home Depot will continue to sell goods to homeowners and builders fixing up existing homes.
Home Depot's dividend yields 2.4%, but the real power in its dividend is its growth story. The company recently raised it by 21% and more than doubled it over the past five years. Better yet, the payout ratio for Home Depot's dividend now stands at 41%, indicating the company has plenty of room to further grow its dividend.
San Francisco-based Wells Fargo (NYSE:WFC) is one of the nation's biggest banks and its largest home lender. While the low interest rate environment is challenging for banks, Wells Fargo will likely look to navigate the tough revenue environment through slow but steady loan growth. In addition, Wells Fargo's cost-cutting program should help support earnings as the benefits of falling loan losses subside. Its diversified sources of fee income have been strong and have offset the slowdown in traditional lending revenue. Its capital strength can help Wells withstand additional mortgage or legal liabilities while continuing to return capital to shareholders.
The banking behemoth's dividend yields 2.4%. Wells Fargo slashed its dividend substantially in the wake of the financial crisis. Following the Fed's 2014 stress test, it received permission to increase its annual dividend 17% and repurchase shares. It has increased its dividend by 500% over the past three years. Its 30% dividend payout ratio gives the company leeway to increase the dividend, which is well supported by strong cash flow and earnings.
Even though Apple (NASDAQ:AAPL) remains a leading innovator and maintains an impressive position in growing categories such as smartphones and tablets, its market share declined last year. It also faces increasing competition from Samsung and Asian vendors. Going forward, Apple must increasingly rely on innovative new products and categories, like wearables, as well as alliances, like its China Mobile deal, to reignite revenue growth and improve profitability. China, the world's largest smartphone market, is becoming a bigger part of Apple's growth story. It appears Apple's strategy is paying off. Sales to China made up about 15% of company sales in fiscal 2013, up from less than 7% in 2009. And Apple increased its share of the smartphone market in China during its most recent blowout quarter.
Apple's dividend yields 2.3%. Its payout ratio is a healthy 29%, which leaves lots of room for further growth. The company recently announced an 8% dividend increase. Apple has boosted it more than 24% since reinstituting its dividend program two years ago. Just last week it announced plans to bolster its ongoing share buyback program.
Don't rule out companies that pay smaller dividends. By overlooking companies that pay lower yields, you might be missing out on the best dividend growth stocks of the coming decade.
Top dividend stocks for the next decade
The smartest investors know that dividend stocks simply crush their non-dividend-paying counterparts over the long term. That's beyond dispute. They also know that a well-constructed dividend portfolio creates wealth steadily, while still allowing you to sleep like a baby. Knowing how valuable such a portfolio might be, our top analysts put together a report on a group of high-yielding stocks that should be in any income investor's portfolio. To see our free report on these stocks, just click here now.
Nicole Seghetti owns shares of Apple, Home Depot, and Wells Fargo. Follow her on Twitter @NicoleSeghetti. The Motley Fool recommends and owns shares of Apple and Wells Fargo. It recommends Home Depot and owns shares of China Mobile. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.