Having some quality dividend growth stocks in your portfolio can allow you to earn more in recurring income as the business grows. And as that happens, you profit from the rise in the company's valuation along with the dividend. Two excellent examples right now are Amgen (AMGN 0.73%) and Apple (AAPL -2.01%).
While these two dividend stocks don't quite yet have long track records for increasing their payouts, they are steadily making progress -- and could well become Dividend Aristocrats. Both businesses generate plenty of cash flow, have been raising their dividend payments in recent years, and investors shouldn't expect those trends to end anytime soon.
Drugmaker Amgen currently pays a dividend yield of 3.1%, which is easily more than the S&P 500 average of 1.7%. Its dividend payments go back to 2011, so it doesn't have the track record income investors may crave. However, Amgen has been rapidly raising its dividend payments; since 2017, the company has grown its payouts from $1.15 every quarter to $1.95, for an increase of 69%. And more increases are likely to come given the company's stability.
Over the past three years, the company's profit margin has been fairly strong at better than 20% (and note the dip in profitability a year ago was related to a one-time charge due to an acquisition that didn't impact cash flow). Amgen spends just over $1 billion every quarter on its dividend, so there's ample room for the company to continue making more dividend increases.
Plus, Amgen's long-term growth potential looks even better with the Food and Drug Administration approving its lung cancer drug Lumakras in 2021. It has the potential to be a blockbuster, with analysts projecting that its annual sales could top $1.4 billion by next year.
It's a great addition to an already diverse business. Even Amgen's top-selling rheumatoid arthritis drug, Enbrel, accounted for a relatively modest 15% of product sales in the company's most recent quarter (ended March 31). At $862 million in revenue, it's close to the $852 million that osteoporosis drug Prolia brought in. Overall, Amgen had seven drugs in the first quarter that generated at least $300 million in sales.
Strong fundamentals, along with a diverse and growing business, make Amgen a terrific long-term buy for income-focused investors.
One stock that looks like a slam-dunk to eventually become an Aristocrat is Apple. Over the past four quarters, its free cash flow has totaled around $106 billion. By comparison, its dividend payments of $14.7 billion during that period are a drop in the bucket and leave plenty of room for increases to the payout in the future.
The tech giant, which is known for its popular iPads and iPhones, has been consistently making dividend payments since 2012. And even though it has plenty of room to make rate hikes, its last increase was a one-cent boost (or 4.5%) to the quarterly dividend. With a yield of just 0.6%, this isn't likely to attract many serious dividend investors right now -- but that could be a mistake.
The only reason the yield isn't more impressive is that Apple's stock has done incredibly well, rising by 300% in five years (compared to 59% gains for the S&P 500). Without such a significant rise in valuation, the stock price would be lower, and the dividend yield would be higher.
A big part of Apple's success is undoubtedly due to its loyal fan base, and that makes its business relatively resilient. While it has diversified into offering services, revenue from its iPhone still totaled $192 billion in its most recent fiscal year (ended Sept. 25, 2021) and accounted for just over half of all revenue. Wearables, home and accessories, and services combined for less than $107 billion in sales during the year, but those business units likely have more growth potential than Apple's iPhone segment in the years ahead. With its core iPhone business looking strong and more growth opportunities still out there for Apple, the company is in great shape moving forward.
For long-term investors, Apple is a great buy for both its growth potential and its dividend. The dip in its share price this year is likely temporary, and this is a solid investment you can buy and hold for a long time.