Good income investments often come with strong dividend yields, delivering income that's higher than an investor could find at a bank or by holding a stock market index fund. But the outlook for steady increases to that payout plays a bigger role in your prospective returns.
With that in mind, let's take a closer look at three stocks that are primed to at least double their dividends over the next few years. Home Depot (HD +0.52%), eBay (EBAY +0.38%), and Tractor Supply (TSCO 1.12%) are great candidates for investors seeking a balance between high payments and quick dividend growth.
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1. Home Depot
Home Depot's record sales growth in 2020 doesn't differentiate it much from its peers. Lowe's (LOW 0.46%) expanded even faster, in fact, even though both home improvement giants gained market share.
But Home Depot's dividend is another story. Home Depot aims to return 55% of earnings to shareholders through dividends each year, compared to Lowe's 35% target. Home Depot also maintains a significantly higher profit margin than its main rival. These factors combine to create an unusually bright outlook for income investors, who can receive an over 2% annual yield by owning the stock today.
HD dividend yield data by YCharts.
The retailer's last report showed a 26% spike in third-quarter earnings, which bodes well for the annual dividend increase that Home Depot will announce when it closes its fiscal year on Feb. 23. Its 2019 increase was 10%, but sales and profits both hit a much higher level as the pandemic focused people's spending habits on home projects.
2. eBay
eBay's business also achieved a major upgrade in 2020, with buyers and sellers both flocking to its marketplace platform. Sales volumes jumped 18% overall, but its asset-light approach delivered far more profits as earnings rose 25% year over year.
The company dedicated a relatively small portion of its cash to dividends last year, choosing to spend $5 billion on stock buybacks, compared to $447 million on dividends. But management's recent 13% increase to that payout suggests a more balanced approach to cash return is ahead.
It has the resources to dramatically increase the dividend today, but the company took a more cautious approach given the COVID-19 threat to global economies. As that risk subsides over the next year or so, investors should see signs of gushing dividend payments from this high-performing business.
3. Tractor Supply
Tractor Supply's dividend isn't as well established as that of some of its peers, but its latest 30% payout hike makes up for that shortcoming. The rural-lifestyle retailer proved its essential status during the pandemic as customers turned to its stores and e-commerce platforms for their home, animal, and recreational farming needs. Revenue soared to $10.6 billion in 2020 from $8.35 billion a year earlier.
Tractor Supply got a modest earnings bounce from that sales surge since it had to spend aggressively to ramp up its online fulfillment platform. But, as Target's recent experience showed, those investments can push profit margins much higher than its current 9%. Look for this dividend to keep growing along with Tractor Supply's improving profit posture.
