Dividend income is a great way for investors to build and accumulate wealth over the long term. Ideally, investors should target dividend-growth stocks that raise their payouts over time to ensure that inflation won't chip away at the purchasing power of the dividend payments.
The three stocks below have been more than covering for inflation, as their quarterly dividend payments doubled over the past five years.
Amgen (AMGN -0.31%) is a biotech with a portfolio of more than a dozen different drugs that it sells to millions of people around the world. The company's products are available in approximately 100 countries.
In the company's Q3 results released in October, its top-selling drug was Enbrel, which accounted for one-third of the company's total product sales. Enbrel treats autoimmune diseases including rheumatoid arthritis, which causes pain and is a result of an ineffective immune system.
In August, Amgen announced it was acquiring Otezla for $13.4 billion from Celgene as part of Celgene's merger with Bristol-Myers Squibb. The drug fits well into the company's portfolio, as it treats arthritis and helps patients who have psoriasis. Otezla is available for sale in more than 50 countries, and total revenue earned on the drug totaled $1.6 billion in 2018. The company's acquisition of the drug was completed in November.
In the announcement, Amgen said, "there is a significant opportunity to grow Otezla through global expansion and new indications, with expectations for Otezla to realize at least low double-digit sales growth, on average, over the next five years."
The addition of Otezla will help inject some much-needed growth into Amgen's financials, as sales were down 3% in the company's most recent results. However, the company continues to generate strong net income, which rose 6% from the prior-year quarter. During Q3, Amgen's free cash flow increased from $3.1 billion a year ago to $3.2 billion as it continues to be in great shape to pay its dividend, which currently yields 2.7% per year.
Although the company started paying dividends in 2011, and it's been growing its payouts at a significant rate. Its current quarterly dividend pays $1.60, which was recently increased by 10% from $1.45 and is payable in Q1 of next year. The current dividend is a little more than double the $0.79 that the company paid in 2015 and averages out to a compounded annual growth rate (CAGR) of 15%.
Year to date, Amgen's stock has risen 27%, about on par with the broader U.S. market.
2. JPMorgan Chase
JPMorgan Chase (JPM -0.72%) is a mammoth blue-chip financial stock with a market cap of $431 billion and a solid dividend yield of 2.6%. Even though interest rates have been falling, the bank is still coming off solid earnings in Q3 that exceeded analyst expectations. For three straight quarters, the bank's profits exceeded $9 billion and were more than 30% of its top line.
The bank still sees the economy performing well, noting that wages and spending has been up. However, even if there are challenges ahead and a recession hits, the stock is a good bet to emerge unscathed as it did after the last downturn. Although it had to cut its payouts during the Great Recession, JPMorgan's dividend payments have increased significantly since then.
Its most recent dividend of $0.90, paid in October, is 125% higher than the $0.40 quarterly payment it made back in October of 2014, giving it a CAGR of 18% per year. However, it's likely not going to continue at that rate, and the bank's most recent dividend increase from $0.80 to $0.90, a 12.5% hike, is a more realistic expectation for investors going forward.
JPMorgan has also had a very strong year thus far in 2019, with the bank stock rising 38% year to date, outperforming the U.S. stock market as measured by the S&P 500.
Mastercard (MA -0.07%) is another strong financial stock that's going to continue doing well as consumer spending remains strong. Like JPMorgan, Mastercard also beat expectations in its Q3 results, released in October. During the quarter, it processed $1.7 trillion worth of transactions, an increase of 14% from the prior-year period, suggesting that spending is still very strong among cardholders.
For dividend investors, what's important is that Mastercard continues to generate strong free cash flow. In the trailing 12 months, the company has produced $5.9 billion in free cash flow, which is well in excess of the $1.3 billion that Mastercard paid out in dividends during that time. That gives the company plenty of room to increase its dividends, and that's what Mastercard has done for the past several years.
The company recently hiked its payouts from $0.33 to $0.40 for its upcoming February 2020 dividend payment. That's an increase of more than 21%. In February 2015, the stock paid investors just $0.16, and the dividend has increased by 150% since then, averaging a CAGR of 20%.
Mastercard has lots of free cash flow and a dividend that yields a very modest 0.54%, so there's still plenty of room for the company to continue raising its payouts. And the more it does, the more formidable of an investment option the stock becomes for dividend investors.
Year to date, Mastercard's stock is up over 56%, far outperforming the U.S. broader market.
Which is the best dividend stock today?
For dividend investors, JPMorgan may be the safest investment of the three to own today. The bank stock offers a great deal of stability and has been increasing its dividends at a fairly decent rate.
Amgen is a close second, as it's a bit riskier, but its growth opportunities could lead to stronger dividend hikes in the future. Mastercard, meanwhile, is more of a long-term play; even with its very high rate of dividend increases, it still has a long way to go in catching up to the dividend yields offered by JPMorgan and Amgen.