Finding a good dividend stock can be challenging, because investors must consider multiple factors. An important one is dividend growth. The three companies listed below have all raised their dividends in recent years, and now could be a great time to consider buying them.
1. Apple
Apple (AAPL 0.48%) has become one of the better dividend stocks on the NASDAQ. Solid financials and ample cash on hand have ensured that dividend investors don't have to worry about the safety of the payouts. As a bonus, the company has also been very aggressive when it has come to buying back shares, letting investors benefit from a rising share price as well. In five years, Apple's stock has climbed by more than 140%.
That makes its dividend yield of 1.1% look a little modest, but the company has been making strides in improving it. Quarterly payments of $0.77 have risen by 64% from the $0.47 of five years ago. That averages out to a compounded annual growth rate (CAGR) of 10.4% per year. At that rate, it would take about seven years for its payouts to double. And given that Apple has $49 billion of cash on its books and its payout ratio is just 25%, it's a very real possibility that dividend payments will continue to grow at a rapid pace.
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2. Medtronic
Medtronic (MDT 0.39%), a Dividend Aristocrat, has a much longer and more consistent dividend-paying history than Apple. Rising payouts has become routine for the company and are a key reason many long-term investors buy its shares. Medtronic is proof that a CAGR of more than 10% can be sustainable; the company has been raising dividends for 42 years, and since 1978, it has averaged annual increases of 17%. Over the past 10 years, the CAGR has fallen to 10%, but that figure has risen back to 12% in the last five hikes.
The healthcare device maker has proven to be a good, stable investment, with the stock's five-year returns coming in at around 50%. Its dividend yield of 1.9% is stronger than Apple's, and with a manageable payout ratio of 60%, it too has plenty of room to continue growing its quarterly payments. The low-volatility healthcare stock could make for a stable long-term investment that can be a pillar for any portfolio.
3. Kraft Heinz
Kraft Heinz (KHC 0.16%) provides investors with the highest dividend yield on this list, coming in at 5.1% per year. The company is coming off a disappointing 2018 that saw impairment charges send its income statement into a net loss of more than $10 billion for the full year. While it might not be out of the woods just yet, the positive is that the company's operating income has remained in the black.
The company announced it would be reducing its dividend payments early in 2019 to help improve its financial position. Then-CEO Bernardo Hees saw the move as a necessary one, stating that "We believe this action will help us accelerate our deleveraging plan, provide us strategic advantage through a stronger balance sheet, support commercial investments and set a payout level that can both grow over time and accommodate additional divestitures. By doing this we can improve our growth and returns over time."
It's a setback for the company, but it could help Kraft Heinz come out stronger. Prior to the rate cut, Kraft's dividend payments had risen by 25% over a five-year period from 2013 to 2018. If the company can get back to producing stronger, more consistent results, future dividend increases could remain a possibility, especially as it tries to win back dividend investors.
The stock is down 27% so far this year and is trading below its book value. It could make an appealing value buy and one that could have a lot of potential to bounce back. Warren Buffett's Berkshire Hathaway continues to hold Kraft Heinz in its portfolio, and the billionaire investor has said that the company still has his confidence.
Which dividend stock is best?
Kraft Heinz might be the most appealing buy for its low valuation and high dividend yield, but it's also the riskiest stock of the three listed here given its falling share price and the struggles it is facing today. Both Apple and Medtronic look to be in much stronger positions and will provide investors with much more stability. With a stronger track record for dividend increases, Medtronic gets the edge for income investors, while Apple is likely the preferred choice for investors valuing growth.
