Any seasoned dividend investor would likely attest to the compounding power of dividend stocks over long periods of time. Not only can the stocks themselves appreciate over the long haul, but many of the best dividend stocks regularly increase their annual dividend payments.
Of course, finding dividend stocks that can stand the test of time isn't always easy. But even in this pricey market, there are still some dividend-paying names that look poised to pay out solid, regular dividends for years to come.
Bank stocks certainly don't offer the same meaty dividend yields they boasted in the years following the recession, or even the 3%-plus yields some of them sported as recently as last summer. But big banks are bringing some value to the table in the form of higher earnings and improved efficiency, signaling their ability to successfully leverage their massive scale. JPMorgan Chase is a perfect example.
JPMorgan's growing profitability and improving operations are particularly evident when you evaluate the bank's return on equity -- arguably the most important metric in banking. Defined as net income as a percentage of shareholders' equity, JPMorgan's trailing-3-year mean for its ROE of 11% highlights the company's improved ability to create shareholder value.
With a dividend yield of 2.2%, JPMorgan's dividend yield may not be mouthwatering, but it's still solid. Further, JPMorgan has been able to consistently grow its dividend lately, increasing it at an average annualized rate of about 13% over the past five years. While the highly regulated banking environment could limit dividend increases in the future, JPMorgan's proven ability to operate efficiently makes a solid case for strong -- and likely growing -- dividend payments for years to come.
Disney's dividend was becoming less attractive earlier this year when the stock rose to $116. The rising stock price suppressed Disney's dividend yield to about 1.3%, but Disney's recent pullback has lifted the dividend yield to a meaningful level again, giving investors a buying opportunity.
It's easy to see why Disney's dividend is solid. Not only is the media giant only paying out about 27% of its earnings in dividends, but its dividend is growing rapidly. In the last five years, Disney's dividend has compounded at an average annual rate of about 19%.
Sure, dividend growth has slowed recently. The company's most recent annual dividend increase was about 10%. But with a payout ratio this low, and with analysts forecasting for average annual EPS growth of 8% over the next five years, Disney's dividend looks poised to grow handsomely over the next decade.
Of course, there are risks to both JPMorgan and Disney's dividends. In particular, unforeseen regulation hindering banking profitability could materialize in the highly regulated banking industry. And Disney's recent decision to overhaul its business model in an effort to bring content directly to consumers may not prove to be as lucrative and opportunistic as management hopes.
But both JPMorgan and Disney stand out as two companies with healthy underlying businesses, meaningful dividend yields, staying power, and exceptional upside potential. These are two dividend stocks worth betting on over the next 10 years.