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3 Great Income Stocks That Could Double Their Dividends

By Rich Duprey – Jun 2, 2020 at 12:00PM

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Low yields and safe payout ratios indicate businesses that could double their dividends in the future.

Blue chip companies have been slashing or suspending their dividends left and right during the COVID-19 pandemic, a smart move as it helps preserve precious capital during a period of great uncertainty. But other businesses not only maintained their payouts, but actually increased them, such as Johnson & Johnson and Procter & Gamble

Those that slashed their dividends due to the pandemic, like Wendy's and Halliburton, could very well double or triple their payouts instantly when business returns to normal so they can begin returning value to shareholders at the same rate they did prior to everything being upended.

The three stocks below, however, are solid dividend-paying stalwarts that haven't seen their finances blown apart by the pandemic, did not cut their payouts, and ought to be able to double their dividends sooner just as much as later.

Change jar spilling coins

Image source: Getty Images.

Sherwin-Williams

Paint specialist Sherwin-Williams (SHW -0.97%) has been the go-to leader for professional contractors, but its acquisition of Valspar several years ago and its relationship with home improvement center Lowe's has given it an increased consumer-facing edge.

Since 2000, Sherwin-Williams has returned some 2,730% compared to 107% by the S&P 500, but it has also increased its dividend for over 40 years, having just this year increased the payout 18% to $1.34 per share. 

That's been a hallmark of the coverings company, growing its dividend at double-digit rates. At the same time, though, the dividend yields a paltry 0.9%, and its payout ratio, which measures the amount of its earnings it pays out in dividends, is under 30%.

While that's in keeping with Sherwin-Williams' fairly conservative management and ensures the dividend is safe, it also provides for the painter to increase the payout, even substantially so, and still retain its relative dividend safety.

Tootsie Roll

There are only a handful of companies with the longevity of candy maker Tootsie Roll (TR -3.83%), let alone ones that have the record of raising their dividends every year for more than 50 years, while paying one for far longer. 

Yet in a world where Hershey and Nestle expand into new verticals, Tootsie Roll is content to stay in its lane making its selection of well-known brands, including Blow-Pop, Charms, and Dubble Bubble gum.

And therein lies the problem, because while Tootsie Roll has an enviable record of consistency and safety, consumer preferences are moving away from sugary sweets and toward more healthy snacks.

Because Tootsie Roll is controlled by the Gordon family, which has run the business for over 60 years, it's not about to change. Ellen Gordon, though, is well into her 80s, so a chance for the business to be rejuvenated relatively soon is high. 

That's good, because the dividend yield is under 1% and the payout ratio is 34%, another clear cushion for growth.

Walmart

Retail king Walmart (WMT -0.99%) has cleaned up during the pandemic. It's a business that was deemed essential because it sold food and necessary household gear, but it was also able to sell clothes, cosmetics, and sporting goods equipment when rival specialty retailers were ordered closed.

When the government sent out the $1,200 stimulus checks, consumers by and large spent them in Walmart's stores, as well as at other favored corporate giants like Target and Lowe's. While most of the massive sales growth Walmart recorded was for food, it was able to take sales from weakened competitors, a number of whom have now declared bankruptcy.

The retail giant will emerge from the crisis an even stronger force in the economy, one which argues it will have the wherewithal to increase its dividend to shareholders, which it has paid every year since 1974 and which it began raising every year immediately thereafter. Even so, the dividend yields an anemic 1.7%, and while the payout ratio sits at 50%, it is still at a safe level to argue for continued growth, one it could raise even more robustly.

Rich Duprey has no position in any of the stocks mentioned. The Motley Fool recommends Johnson & Johnson, Lowe's, Nestle, and Sherwin-Williams. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Walmart Inc. Stock Quote
Walmart Inc.
WMT
$132.92 (-0.99%) $-1.33
Target Stock Quote
Target
TGT
$156.41 (-0.35%) $0.55
Sherwin-Williams Stock Quote
Sherwin-Williams
SHW
$217.37 (-0.97%) $-2.14
The Wendy's Company Stock Quote
The Wendy's Company
WEN
$19.56 (0.46%) $0.09
Johnson & Johnson Stock Quote
Johnson & Johnson
JNJ
$165.11 (-0.31%) $0.51
Procter & Gamble Stock Quote
Procter & Gamble
PG
$129.20 (-0.69%) $0.90
Lowe's Stock Quote
Lowe's
LOW
$199.03 (0.82%) $1.61
Halliburton Stock Quote
Halliburton
HAL
$29.24 (3.98%) $1.12
Nestle Stock Quote
Nestle
NSRGY
$108.89 (-0.71%) $0.78
The Hershey Company Stock Quote
The Hershey Company
HSY
$225.09 (-0.26%) $0.58
Tootsie Roll Industries Stock Quote
Tootsie Roll Industries
TR
$33.87 (-3.83%) $-1.35

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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