If you're looking for steady income from your stocks, these companies should be at the top of your watchlist, if not already in your portfolio. All are not only market leaders but financially strong companies with meaningful dividends that are rising on an annual basis. These three stocks are tech giant Apple (AAPL -1.22%), ski resort company Vail Resorts (MTN -5.00%), and home-improvement retailer Home Depot (HD 0.74%).
Here's what makes each of these names attractive dividend stocks. But first, here are their raw numbers.
The numbers
|
Company |
Dividend Yield |
Most Recent Dividend Increase |
3-Year Average Annual Dividend Growth |
Payout Ratio |
|---|---|---|---|---|
|
Apple |
1.4% |
11% |
10% |
26% |
|
Vail Resorts |
1.9% |
30% |
37% |
65% |
|
Home Depot |
1.8% |
29% |
24% |
46% |
Data source: Company investor relations websites and Reuters. Table by author.
Though none of these companies has a spectacularly high dividend yield, with all three companies' dividend yields below 2%, investors shouldn't overlook these stocks as good income investments. Their dividends are not only rising by double digits, but there's good reason to expect strong growth in their dividends to continue.
Apple
Since initiating its dividend in 2012, Apple has morphed into an excellent investment for those looking for income.
Apple CEO Tim Cook. Image source: Apple.
Although its 1.4% dividend yield is the lowest among these three stocks, Apple shines as a dividend stock with its extremely low payout ratio. Paying out just 26% of its earnings in dividends, it has significant room for dividend growth in the coming years, especially after a recent change in tax law that allowed Apple to repatriate boatloads of foreign cash at a significant discount.
But it's not just this low payout ratio that suggests the tech company can keep increasing its dividend at meaningful rates in the years ahead. Its recent earnings growth arguably makes the best case for more dividend growth. Apple has managed to increase its trailing-12-month earnings per share by a meaningful 11% year over year -- and analysts expect earnings to continue growing at a similar rate over the next five years.
Vail
Unlike Apple, Vail is more of a traditional dividend stock, paying out a much higher percentage of its earnings in dividends to shareholders. In the trailing 12 months, Vail paid out 65% of its earnings in dividends.
Image source: Getty Images.
But Vail makes up for its high payout ratio with a clear commitment to dividend growth and a robust dividend yield. Over the past five- and three-year periods, its dividend has risen at an average annual rate of 39% and 37%, respectively. Its most recent dividend growth also remained strong, with a 30% year-over-year boost. Finally, the 1.9% dividend yield is above the average dividend yield of stocks in the S&P 500 of 1.8%.
Of course, investors shouldn't expect dividend growth to remain this strong over the long haul. It's unlikely dividend growth can maintain this trajectory given Vail's 65% payout ratio. But with management clearly prioritizing dividend growth, more double-digit dividend growth in the coming years is likely, albeit at decelerating rates.
Home Depot
Home Depot is probably the most well-rounded dividend stock of these three companies. It boasts a meaningful dividend yield of 1.8%, strong double-digit dividend growth, and a conservative payout ratio.
Image source: Getty Images.
Over the past three years, Home Depot's dividend has increased at an average rate of 24%. Even better, this dividend growth rate has accelerated recently, with Home Depot's most recent dividend increase coming in at 29%. Supported by a strong growth trajectory in its bottom line, with earnings per share increasing at an average rate of 21% annually over the last three years, Home Depot looks poised to continue this heady double-digit dividend growth in the years ahead. Also, Home Depot's lower payout ratio of 46% means there's little risk to this dividend growth.
The best reason to own these stocks
To top it all off, all three of these companies are market leaders in their segments. Apple dominates profits in smartphones and continues to demonstrate uncanny pricing power across its product lines. Vail is the leader in luxury ski resorts, with Colorado's most iconic properties and resorts in Utah, Lake Tahoe, and Whistler under its belt -- destinations that will pay dividends for decades to come. Finally, Home Depot is the world's largest home-improvement retailer and has shocked investors with its ability to grow sales and profits as other retail sectors fall victim to an evolving retail landscape.
Combining their market leadership with their strong dividends, these three stocks represent low-risk bets for investors looking for a sustainable, growing stream of income.
