What's better than a $2 dividend payout? A $4 dividend payout!
Of course, it's more helpful to think in terms of dividend yields, which compare a company's payout to its recent share price. A $50 stock paying an annual dividend of $2 (typically in quarterly installments of $0.50) has a dividend yield of 4% -- $2 divided by $50 is 0.04, or 4%. A $4 dividend is twice as nice, and it would represent an 8% yield for a $50 stock.
Dividend-paying stocks are well worth considering for your long-term portfolio because they offer two ways to profit: From share-price appreciation and from dividends -- which themselves tend to be increased over time.
Here are three dividend-paying stocks to consider, each of which has been increasing its payouts at a rate well above average.
Many investors these days are excited about the prospects of "fintech" -- companies specializing in innovative financial technology. Many such companies are relatively young and very focused on fintech, but here's a digital payments company that's much more established -- enough to be committed to regular dividend payments: Visa (V -1.18%). Visa has partnerships with various fintech companies and has invested in some of them, too.
The Visa empire encompasses more than three billion charge cards worldwide, and more than 210 billion transactions annually in more than 160 currencies, totaling more than $11 trillion in volume. Consumers use Visa cards at more than 60 million merchant locations and Visa works with more than 15,000 financial institutions. Wow. The company is ridiculously profitable, too, with a net profit margin recently at a whopping 50%. (For many companies, a 10% net margin would be delightful.)
Visa's dividend is rather modest at the moment, recently yielding just 0.6%, but its growth rate over the past five years has averaged 18% annually. At that rate, its $0.32 quarterly dividend will become a $0.73 one in five years and a $1.67 one in a decade. There's plenty of room for that growth, too, as the company's payout ratio (the portion of earnings paid out in dividend form) was recently a measly 26%.
2. Bank of America
Bank of America (BAC -1.23%) is a well-respected big bank -- holding more than 10% of all U.S. deposits. Even super-investor Warren Buffett is among its admirers, with his company Berkshire Hathaway owning nearly 12% of it. (Bank of America is Berkshire's second-largest stock holding, after Apple.)
The company hasn't been firing on all cylinders lately for the expected reason: The pandemic. But vaccinations are happening en masse, and it's looking like America and much of the world will be seeing an economic recovery soon. Banks should benefit in that case, as they're cyclical and not at a high point now.
Bank of America recently yielded nearly 1.9%, and it has upped that payout by an annual average of 29% over the past five years. The current yield is lower than those of its big-bank peers, but its payout ratio is lower than theirs, too, suggesting even more room for growth. A growing dividend is rather likely, too, since the company is sitting on substantial excess capital. It's so big that it can't spend money buying another bank, so a meaningful chunk of excess earnings are likely to go toward dividends and stock repurchases.
Lastly, there's Broadcom (AVGO -3.69%), a company that isn't exactly a household name. But maybe it should be, as it's a huge chipmaker, with a recent market value near $200 billion. It sports an appealing dividend yield, too, recently 3%. Better still, that payout has been growing at an average annual rate of 49% over the past five years. You read that right -- it has grown more than seven-fold in that relatively short time.
Broadcom's future looks rosy, partly because it makes 5G chips for smartphones (among other things), and America is looking forward to a widespread 5G rollout that has already begun. It has also branched out into software, via acquisition, and that's diversifying its revenue stream -- and software often features fatter profit margins than hardware.
Broadcom's latest earnings report and management outlook were promising, with double-digit growth in chips and general optimism about the near-term outlook, as a recovering global economy is likely to boost demand for Broadcom's offerings. Meanwhile, the company has a backlog of orders to fill.
These are three exciting companies worth a closer look as candidates for a long-term portfolio. They offer dividend income that's growing -- and likely stock-price appreciation, as well.