Too many investors considering a new stock get caught up in its current yield. However, far better opportunities lies in companies that have the ability to consistently grow their dividends. Such growth should not only supply more income over the long-term, but drive better overall returns. Here are three companies we expect will boost their dividends in the very near future.
A steelmaker with strong numbers
Neha Chamaria: Going by Nucor Corporation's (NYSE:NUE) operational performance so far this year, as well as its just-released third-quarter guidance, I'm confident the steelmaker will raise its dividend in coming months.
Nucor's net income grew by almost 50% year over year during the first half of 2016 as its core steel mills segment benefited from higher sales volumes and prices, as well as lower input costs. Nucor now projects its third quarter earnings per share will come in 20% to 27% higher year over year. That's great news, because higher earnings should lead to higher cash flow, which will allow it to return more to shareholders in the form of dividends.
While Nucor's payout ratio of 76% is on the higher side, it can still raise its dividends without increasing that ratio, thanks to a growing bottom line. Moreover, Nucor paid out less than 30% of its free cash flow in dividends last year, leaving ample room for improvement. In fact, the company has done a pretty good job converting profits into FCF: It's been FCF positive in four out of the past five years despite the downturn in the commodity markets.
Given that Nucor generated almost twice its net income in FCF in the trailing twelve months, a dividend hike should be coming your way soon. That could come as early as next quarter, so watch out. Meanwhile, enjoy Nucor's yield of 3.3%.
A pipeline full of rising dividend checks
Matt DiLallo: I am probably cheating a little bit, but midstream MLP Enterprise Products Partners (NYSE:EPD) is a natural choice for investors looking for income growth. The company already put out its distribution growth schedule for 2016, which projects payouts will increase by $0.005 per unit each quarter for total distribution growth of 5.2%. The company is right on schedule so far: It made two increases already this year, giving it a record of 48 straight quarterly distribution increases and 57 since going public in 1998.
That said, the reason I am confident Enterprise Products Partners will boost its payout in the very near future is not just because that is what its management team said it would do in January. Instead, it's because of what I see driving this growth -- the company's solid financials and visible cash flow growth. Underpinning its financials are its stable fee-based cash flow, sector-leading investment grade credit rating, and ample distribution coverage. Meanwhile, driving growth are the $1.9 billion in assets the company placed into service already this year, and another $400 million progressing toward completion by year-end. Further, with another $5.2 billion in projects under construction and set to be complete over the next two years, Enterprise Products Partners' distribution growth streak appears poised to continue well beyond 2016.
Spice up your portfolio
Dan Caplinger: Many companies that have capitalized on the globalization of the consumer market have done extremely well, and Yum! Brands (NYSE:YUM) has done an exceptionally good job of capturing opportunities in key emerging markets. With the KFC, Pizza Hut, and Taco Bell brands all under its corporate umbrella, the restaurant giant has mass appeal to a wide set of customer tastes. In particular, the KFC brand has been successful in China, and despite some short-term health concerns at times, Yum! has rebounded sharply.
Quietly, Yum! Brands has also put together an impressive dividend growth story. For 12 consecutive years, it has delivered higher payouts, including a 12% boost this time last year. With the company traditionally making its annual increase with its October payout, now is a great time for dividend investors to look at the restaurant chain. Moreover, with the potential spinoff of Yum! China into a separately traded company, those who buy Yum! Brands now will likely end up with two stocks for the price of one. Given the growth potential that Yum! has both in the U.S. and abroad, looking closely at the stock before it makes its next move could offer delicious benefits to your investment portfolio.
Dan Caplinger has no position in any stocks mentioned. Matt DiLallo owns shares of Enterprise Products Partners. Neha Chamaria has no position in any stocks mentioned. The Motley Fool recommends Enterprise Products Partners and Nucor. 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.