Some dividend stocks belong in a league of their own. For these stocks, the dividend yields look great. The companies are in strong financial shape to keep the dividend checks flowing. But even better, their dividend payments are growing incredibly fast.
Not many stocks fit those criteria. But AbbVie (ABBV 0.98%), Boeing (BA -0.76%), and Texas Instruments (TXN 1.25%) do. Here's why these three stocks have been able to grow their dividends impressively over the past three years.
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AbbVie
AbbVie increased its dividend by 88% over the last three years. The big pharma company's yield now stands at a solid 3.25%. Since being spun off from parent Abbott Labs in 2013, AbbVie's dividend has soared 140%.
There's one primary reason AbbVie has been able to deliver such impressive dividend growth: the success of Humira. The autoimmune-disease drug again ranked as the top-selling drug in the world last year, with revenue of $18.4 billion.
While Humira still accounts for 65% of AbbVie's total revenue, the company has other products that will help generate higher cash flow over the next several years. Cancer drug Imbruvica is already a huge success, with sales of nearly $2.6 billion in 2017 and 40% year-over-year growth. AbbVie's new hepatitis C drug, Mavyret, is expected to become the company's next blockbuster. In addition, the drugmaker's pipeline includes several promising candidates with tremendous potential.
AbbVie currently uses less than 44% of free cash flow to fund its dividend program. Its strong cash flow, along with its great growth prospects, gives the company considerable flexibility to keep its streak of dividend hikes going.
Boeing
Boeing only narrowly trails AbbVie, with dividend growth over the past three years of just a little below 88%. Since 2013, Boeing's dividend skyrocketed nearly 253%. The aviation giant's dividend now yields 1.89%.
Selling jets to the commercial airline industry provides the primary source of Boeing's revenue. In 2017, the company's commercial airplanes segment generated almost 61% of total revenue. Boeing also sells military aircraft and weapons systems to governments, a business that contributed over 22% of total revenue. The company's global services segment, which offers aviation services support, spare parts, training, and other services to customers, kicks in most of the rest of Boeing's revenue.
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After a strong performance last year, Boeing appears to be set for another good year in 2018. The commercial airline industry is expected to enjoy continued profitability, which is great news for aircraft manufacturers as well. Boeing also has a large backlog of orders and has ramped up production of its 737 and 787 jets thanks to strong demand.
Investors shouldn't have to worry that Boeing won't be able to increase its dividend in the future. The company uses only 30% of free cash flow to pay out dividends.
Texas Instruments
Texas Instruments (TI) boosted its dividend by an impressive 82% over the past three years. The large semiconductor company increased dividend payments by 121% since 2013. After these dividend increases, TI's dividend yield now stands at 2.29%.
Purchases of semiconductors by industrial customers, including manufacturers of appliances, factory automation, and medical devices, account for roughly 35% of TI's total revenue. Sales related to personal electronics, such as mobile phones, PCs, and TVs, contributes another 25% of total revenue. TI makes around 19% of total revenue from the automotive industry. Most of the rest of the company's revenue stems from selling semiconductors for communications equipment, enterprise systems such as servers and multi-function printers, and a staple for TI for many years -- calculators.
TI turned in a great performance in 2017, and its growth prospects continue to look good. The company is especially focused on the automotive and industrial markets. TI thinks demand for semiconductors in these areas will grow significantly in the future because of their increasing semiconductor content.
But can TI keep those attractive dividend increases coming over the next several years? It seems likely. The company uses only 45% of free cash flow to fund the dividend program, giving TI ample room to boost dividends down the road.
Best bet
If I could only pick one of these great dividend stocks to buy, it would be AbbVie. There are three main reasons I like it the most.
First, the drugmaker has the better growth prospects than Boeing or Texas Instruments. AbbVie is expected to grow earnings by 17% annually over the next five years, which is higher than growth projections for the other two companies.
Second, AbbVie presents the better value. Currently, the stock trades at only 13 times expected earnings. By comparison, the forward earnings multiples for Boeing and TI are 21 and 19, respectively.
Third, AbbVie claims the highest dividend yield of the three stocks. And it doesn't hurt that the company has increased its dividend at a faster rate over the past three years than either Boeing or TI.
All three of these stocks appear to be in solid shape to continue paying and increasing dividends in the future. But AbbVie stands out as perhaps the best combination of growth, value, and income on the market right now.
