Sometimes, dividend investors' focus on stocks with meaningful dividend yields can distract them from promising under-the-radar opportunities for income growth. Case in point: Both Visa (V +0.25%) and Intuit (INTU +3.30%) have relatively unimpressive dividend yields, but their dividend growth potential is excellent.
Here's a closer look at each of these dividend stocks, and why income investors may want to consider putting both of these companies on their watchlists.
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Visa
|
Dividend Yield |
Payout Ratio |
Most Recent Dividend Increase |
Market Capitalization |
|---|---|---|---|
|
0.7% |
24% |
18% |
$256 billion |
Data source: Reuters.
Visa is undoubtedly the more dependable investment of these two stocks, with a market capitalization of $252 billion versus Intuit's market cap of less than $40 billion and a longer dividend track record. (Visa and Intuit initiated their dividends in 2008 and 2011, respectively.) Visa investors, however, will have to settle with a small dividend yield of just 0.7% -- at least for now.
But despite its tiny dividend yield, Visa is turning into a dividend powerhouse. The credit card company has announced a dividend increase every year since 2009, the year after its IPO. Even more, its dividends have increased by consistently strong rates recently, doubling between 2013 and 2017. And Visa kept up this impressive dividend track record with its most recent dividend increase, which was announced in October. The company boosted its dividend by 18%, in line with its 18% dividend increase last year.
Looking ahead, double-digit dividend growth should persist. Visa's underlying business is firing on all cylinders, with net income in its fiscal 2017 rising 12% year over year to $6.7 billion. Adjusted net income during this period was up an even stronger 21%. Meanwhile, Visa is only paying out 24% of its earnings in dividends, leaving plenty of room for further dividend increases.
Intuit
|
Dividend Yield |
Payout Ratio |
Most Recent Dividend Increase |
Market Capitalization |
|---|---|---|---|
|
1% |
37% |
15% |
$40 billion |
Data source: Reuters.
Intuit's dividend yield is slightly bigger than Visa's, but it's still unimpressive at just 1%. However, like Visa, all signs point to continued, strong dividend growth in the years to come.
First of all, Intuit's operating income growth in its fiscal 2017 has set a strong foundation for more dividend increases. Operating income increased 12% year over year. Making its growth story particularly interesting, Intuit's online Quickbooks subscribers are growing like weeds, up 58% year over year, demonstrating both the momentum and the potential of Intuit's comprehensive ecosystem of online financial management solutions.
Then there's Intuit's strong dividend growth recently, demonstrating Intuit's commitment to increasing its payout. Its dividend has increased at an average rate of 24% annually over the past five years. And Intuit maintained a double-digit increase with its most recent 15% boost, announced in August.
Looking ahead, management's guidance for GAAP and non-GAAP operating income to increase 8% and 10.5% year over year, respectively, based on the midpoint of management's expected ranges for the two metrics, suggests that Intuit's underlying business should easily sustain more dividend growth -- especially since Intuit is paying out just 37% of its earnings in dividends.
Even with small dividend yields of 0.7% and 1%, income investors should give Visa and Intuit a closer look. Thanks to strong momentum in their dividends, both stocks could transform into big dividend payers over the long haul.
