Though there are plenty of ways to make money as an investor, dividend stocks tend to be more of a sure thing than most bets. Historically, stocks that pay a dividend have handily outperformed their peers that don't share the wealth with investors, which really shouldn't surprise anyone. After all, the only reason a company would consider sharing a percentage of its profits with investors is if it's profitable and/or forecasting continued growth. Therefore, dividend stocks tend to be a beacon of profitability and time-tested business models for investors.
Income stocks can also be great for helping to hedge against inevitable stock market corrections, and can be used to supercharge wealth creation through a dividend reinvestment plan. Drips are the secret weapon of money managers to build wealth for their clients without so much as lifting a finger.
But as you're probably aware, no two dividend stocks are created equally. With yield being a function of share price, investors really have to decipher whether an income stock is a money machine or a trap. For the following three dividend stocks, they most definitely fall into the former category, as they've delivered some of the most impressive payout growth in recent years.
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Bank of America
Few companies have grown their dividend quite like Bank of America (BAC 0.45%) this decade, although this growth comes with an asterisk. During the height of the Great Recession, Bank of America wound up slashing its quarterly payout from $0.64 to just $0.01. In addition, along with other large money center banks, BofA also came under the supervision of the Federal Reserve in terms of needing approval to raise its payout following the Great Recession.
The good news is that Bank of America has put all of its Great Recession-related charges and settlements in the rearview mirror, and it has had no issue passing the Fed's stress tests. This has allowed the well-known bank to increase its quarterly payout from $0.01 in the second quarter of 2014 to $0.18 as of the current quarter.
Bank of America has really benefited from its push to modernize. It's closed some of its physical branches and focused on mobile banking, which is a means of reducing costs and maximizing margins. The fact that the Federal Reserve has moved the federal funds rate off historic lows set between late 2008 and late 2015 has also led to a surge in interest income for BofA. In fact, Bank of America might arguably be the most interest-sensitive of all money center banks, which bodes well if interest rates return to their historic norm in the years to come.
Assuming the longest economic expansion in U.S. history keeps chugging along, Bank of America's payout can continue marching higher.
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Zoetis
Remember, growth stocks can deliver rapid dividend increases, too. At just a 0.54% yield, veterinary medicine and diagnostics company Zoetis (ZTS -0.14%) probably leaves a lot to be desired by income seekers on the surface, but this is a company that's more than doubled its payout from $0.065 in the second quarter of 2013 to $0.164 as of today.
What makes Zoetis such an intriguing company is that it handles medicine and diagnostics for both livestock and companion pets, such as cats and dogs. According to the American Pet Products Association, Americans will spend an estimated $75.4 billion on their pets in 2019, with $19 billion alone spent on vet care and another $16.4 billion on supplies and over-the-counter medicine. I mention this, because Zoetis generated nearly twice as much revenue from companion animals in the U.S. during the third quarter than livestock. In fact, whereas livestock revenue fell 9% in the U.S., companion revenue in the U.S. and internationally rose 26% and 12%, respectively, from the prior-year period. This focus on owners' attachments to their four-legged friends has become quite profitable for Zoetis.
Furthermore, with few large competitors, Zoetis has quite a bit of pricing power for its impressive portfolio of medicines, and plenty of runway with which to grow its companion pet business, especially in international markets. A sales growth rate in the high-single-digit percentage rate should be possible for years to come. Thus, even with significant reinvestment for research and development, Zoetis should have little trouble continuing to boost its dividend for shareholders.
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Broadcom
Income seekers would also be wise not to overlook the high-growth tech sector, which can occasionally produce dividend superstars, such as Broadcom (AVGO -2.48%). Given its current 3.3%, yield, it's almost hard to believe that Broadcom was paying out a "meager" $0.12 during the fourth quarter of 2011. In the current quarter, a payout of $2.65 per share is expected. That's more than 2,100% dividend growth in an eight-year time frame.
Fueling this incredible growth are Broadcom's bread-and-butter products -- namely, wireless chips for smartphones and broadband access chips. Broadcom has, both organically and through acquisitions, grown into a premier name for connectivity and processing devices. The ongoing launch of 5G wireless networks should lead to a slew of smartphone upgrades featuring Broadcom's technology, while the ongoing enterprise push from a paper-filled world into the cloud will continue to buoy growth in chips designed for data center servers. You'd probably struggle to find an aspect of Broadcom's business that isn't clicking right now.
In just the most recent quarter, Broadcom delivered nearly 9% year-on-year sales growth, all while returning more than $2 billion to shareholders via $1.1 billion in cash dividends and $977 million in share repurchases. With the company's deal to acquire Qualcomm nixed by the federal government in March 2018, Broadcom has cash to spend, and it looks as if shareholders will be the prime beneficiary of that spending for the foreseeable future.
