Dividend stocks are attractive investments because they provide immediate income plus the potential for steady, and sometimes significant, stock-price gains. The best of these stocks also deliver market-beating growth in their dividend payouts, which helps supercharge an investor's long-term returns.
With that in mind, below we'll take a closer look at three stocks -- McCormick (NYSE:MKC), TJX Companies (NYSE:TJX), and Lowe's (NYSE:LOW) -- that appear poised to at least double their dividends over the next few years.
Spice up your portfolio
McCormick has issued solid payout raises to income investors over the last three years as the annual dividend climbed to $1.88 per share last year from $1.60 per share in 2015. But, considering recent operating trends, the spicing and flavorings giant could be preparing to speed up that dividend expansion pace.
Sales over the first three quarters of 2018 are up 18% thanks to a big contribution from the French's and Frank's brand portfolio it recently acquired. These condiments have helped lift gross profit margin up to a new high for the company, too, while improving its cash flow generation.
Right now, McCormick is directing most of that cash toward paying down the $4 billion of debt it took on to fund its RB Foods buyout. But management plans to keep its incredible 32-year payout-boosting streak going while aggressively reducing its debt between now and 2020. At that point, its higher sales and profit base should allow for even faster dividend growth.
An improving payout
Lowe's investors have gotten used to seeing the company live in the shadow of its more successful home improvement rival. Its sales growth and profitability both significantly lag Home Depot's, and that's not likely to change quickly even as the retailer welcomes a new CEO to its ranks. In fact, one of Marvin Ellison's first official acts as Lowe's new leader was to lower the company's 2018 sales growth outlook.
Investors are optimistic that the changes Ellison is implementing, including an improved supply chain and better integrated online selling, will help the retailer close the gap with Home Depot over the next few years. In the meantime, its attractive dividend, which has more than doubled in five years, could grow more quickly with help from the company's new focus on financial efficiency.
Lowe's currently allocates about 35% of earnings to shareholders in dividends, and that payout rate has room to climb toward Home Depot's 55% -- if the company can start accelerating its sales and profit growth.
Discounted dividends ahead
Off-price retailing giant TJX Companies has raised its dividend in each of the last 24 years, which means it is quickly approaching the 25-year minimum requirement to qualify as a Dividend Aristocrat. The owner of the TJ Maxx and Marshalls brands hiked its annual payout 123% over the past four years, and income investors can now count on $1.56 per share from the company, up from $0.70 per share back in 2015.
The future for this dividend looks just as bright. In August, the retailer announced a sharp increase in its sales growth rate while its profitability held steady. Combining those operating successes with a plunging tax rate explains why net income has risen 34% over the past six-month period.
TJX's treasure-hunt shopping atmosphere resonates especially well with younger consumers, and that's a key reason why the company believes it can expand its physical store footprint to over 6,000 locations from 4,200 right now. Its long track record of boosting customer traffic also suggests it can continue soaking up market share over that time, which should help income investors reap solid returns from owning this retailer.
Demitrios Kalogeropoulos owns shares of HD. The Motley Fool has the following options: short February 2019 $185 calls on HD and long January 2020 $110 calls on HD. The Motley Fool recommends HD, Lowe's, McCormick, and The TJX Companies. The Motley Fool has a disclosure policy.