The best dividend stocks pay out a healthy yield and have strong growth prospects. While finding companies that offer both of these traits isn't easy, they certainly do exist.
To aid you in your search for these elite businesses, we asked a team of Fools to highlight a dividend-paying stock that they believe will grow for at least the next decade. Here's why they picked Franco-Nevada (TSX:FNV), Sherwin-Williams (NYSE:SHW), Starbucks (NASDAQ:SBUX), CareTrust REIT (NASDAQ:CTRE), and BlackRock (NYSE:BLK).
This stock offers rising income from natural resources
Dan Caplinger (Franco-Nevada): The precious metals industry isn't exactly known for its high-yielding dividend stocks, and most mining companies can't afford to return hard-earned capital back to shareholders, instead plowing it back into their own internal business operations. However, Franco-Nevada follows a different business model, providing much-needed financing to mining company partners in exchange for royalty interests or precious metals streams at discounted prices. By making smart deals with miners, Franco-Nevada avoids much of the hassle and risk of operating its own mines, and the company has been able to share its excess capital with investors even as it periodically makes new deals to expand its scope even further.
Over the past five years, Franco-Nevada has nearly doubled its dividend payout, going from monthly distributions of $0.04 per share to quarterly payouts of $0.22 per share. Dividend growth has been an annual part of Franco-Nevada's history, and although the company's 5% increase last year was relatively small compared to larger boosts in the past, the streaming specialist remains committed to long-term increases in the amount of capital it returns to shareholders. With the company now looking beyond precious metals to focus more on energy plays, Franco-Nevada hopes to boost the number of oil and gas royalty interests it owns, diversifying its portfolio and creating even more opportunities to generate income. In the next decade, expect Franco-Nevada to sustain and grow its payout to become a top dividend stock.
Covering the world with growth
Rich Duprey (Sherwin-Williams): Paint specialist Sherwin-Williams has an enviable record of raising its dividends each and every year for the past 38 years, conferring on it the status of Dividend Aristocrat. Largely rising and falling on the health and success of the housing, that it has maintained that streak even through the collapse of the market a decade ago is a remarkable achievement.
It's still facing challenges today, with its Latin American business dealing with the economic upheavals occurring throughout much of the region, as well as its ongoing attempts at making a large acquisition. Fortunately, Latin America, which primarily consists of Mexico and Brazil, only comprises 5% of its business, and there's a good chance Sherwin-Williams will be able to bag Valspar, despite regulators seeking out more information regarding the combination.
The coatings specialist has been thwarted before at growing through acquisition, like its attempt to acquire Mexican paint store giant Comex, but the Valspar deal could be more important because it expands its presence in the consumer market. Much of Sherwin-Williams' business comes from professional painters, and Valspar's presence in do-it-yourself home center Lowe's could give it a big step up.
Admittedly, Sherwin-Williams' shareholder payout isn't the richest dividend. At $0.85 per share for the current quarter, it represents a 1.2% increase over the payout last year, one that's currently yielding 1.1%. That's lower than the yield from last year, but the paint maker's stock price has risen 10% over the past year and is up 15% year to date.
It remains a financially sound company, and if it completes the deal with Valspar, will vault from third place into the top spot as the largest coatings company, ahead of PPG Industries and AzkoNobel. It should be noted that PPG is trying to acquire Azko, but keeps getting rejected. Regardless, Sherwin-Williams will be a solid dividend payer for the next decade, and likely for many years after that, too.
This growth story isn't over yet
Brian Feroldi (Starbucks): Nearly two decades ago, The Onion published a satirical article about Starbucks opening up new stores in the restrooms of their current locations. The joke was that the company was already so ubiquitous that it simply had no more room left for future growth. However, had an investor bought shares on the same day that this article was published they'd currently be up 1,810%! That's a pretty good result for a company that supposedly had already saturated its market.
Amazingly, there are still plenty of reasons to believe that Starbucks' run is far from over. One reason is that the company still believes there is plenty of room left for new store openings. Between now and 2021, the company has plans to open 12,000 new stores, with 3,400 of them located in the U.S. That's a big boost from the company's current store base of 26,000. When combined with the growth of food sales, Teavana, and consumer packaged goods, Starbucks top and bottom lines look well-positioned for double-digit growth in the years ahead.
Strong financial statements should make it easy for the company to continue to reward shareholders with a rising dividend. Over the past five years, Starbucks has raised its payout by more than 22% annually. While that growth rate will eventually slow, double-digit raises from here wouldn't surprise me at all. When adding in the company's current yield of 1.7%, Starbucks looks like a terrific income stock to hold for the long term.
Riding the baby Boomer retirement trend to big growth
Jason Hall (CareTrust REIT): Over the next 13 years, tens of millions of baby boomers will retire. By 2027, the oldest of this generation will already be in their 80s. And in between now and then, thousands of senior housing, long-term care, and rehab facilities will need to be built to meet the demand of the biggest elderly population in American history.
And CareTrust is positioned to be one of the companies in the middle of this huge growth opportunity. The data is overwhelming when it comes to seniors and the need for the kinds of care facilities CareTrust owns. According to the U.S. Department of Health and Human Services, 70% of people over 65 will need some sort of long-term care during their lives. With more than 3 million more baby boomers reaching retirement age each year on average, and fewer senior housing facilities open today than there were 15 years ago, this is on track to become a seriously underserved market.
CareTrust, with 161 properties, is a small player in this industry, but it has a solid, tenured management team with long experience running the business. And as a REIT, CareTrust is built to pay dividends to its investors, making it very likely that this company will be one of the best dividend growth stocks of the next decade, and potentially much longer.
Surfing the wave of index investing
Jordan Wathen (BlackRock): The most certain thing in investing over the next 10 or even 20 years might be that investors will put more money into passive index funds and ETFs. BlackRock has an incredible lead in that category thanks to its iShares line of ETFs, which took in 35% of all fund flows into ETFs last year.
While everyone fears that the industry may simply be in a race to the bottom on fund fees -- fees are declining, to be sure -- large investors care about more than just the annual management fee. For example, iShares' second largest-ETF, the iShares MSCI EAFE ETF, has about 40% more in assets than a competing Vanguard fund, despite its higher expense ratio.
Importantly, iShares' ETF has about 2.3 times more daily trading volume. If you wanted to buy in size, the iShares ETF may be the better choice for institutional investors given that its shares are traded in much greater volumes.
The traditional asset management industry is extremely capital light, requiring little in the way of additional investment to grow earnings. BlackRock has historically paid out about 40% to 50% of quarterly earnings in the form of a dividend, with another 20% to 30% of earnings returned to shareholders via repurchases. Over the next 10 years, investors should enjoy dividend growth that greatly outpaces that of the market as a whole.