Investing in a top dividend stock should involve more than just looking at which one has a high yield today. Investors should also consider businesses that are doing well and that could increase their payouts in the future. With increasing yields, that means you will be collecting more in dividend income than you are right now, which gives you an incentive to buy and hold.
Three high-yielding dividend stocks that analysts believe could make significant increases to their payouts over the next two years are Amgen (AMGN -1.40%), Tapestry (TPR -2.19%), and Stanley Black & Decker (SWK -1.64%).
1. Amgen
Healthcare company Amgen makes a variety of drugs for patients around the world. A big part of its revenue comes from medications focused on arthritis and osteoporosis. Last year, its top three drugs (Enbrel, Prolia, and Otezla) generated just under $10 billion in sales, accounting for 38% of the company's total revenue of $26 billion. The company also has a new potential blockbuster in lung cancer drug Lumakras, which the Food and Drug Administration approved last year. The drug may generate more than $1 billion in annual revenue as early as next year.
The diversity of Amgen's business gives it a promising future. And so it's no surprise that analysts expect strong growth in its dividend. Today, Amgen yields 3.1%, which is better than the S&P 500 average yield of 1.7%. Over the next two years, analysts from FactSet project that the dividend may increase by a compound annual growth rate (CAGR) of 12%, making it not just a high-yielding stock but a promising dividend growth stock as well.
Amgen's dividend is strong today (its payout ratio is a sustainable 62% of net income), and with more growth on the horizon for the business, this could be a top income stock to hold for the long term.
2. Tapestry
Tapestry is a luxury company that has three key brands: Coach, Kate Spade, and Stuart Weitzman. The business has been doing well even amid inflation. Last month, it reported its year-end results for the period ended July 2. Sales grew 16% year over year to a record $6.7 billion.
By 2025, the company expects that number to hit $8 billion. Its strongest markets are in China and North America, but Tapestry is also working on expanding its reach in Southeast Asia and Europe, which it calls "under-penetrated geographies."
Today, the stock pays investors a yield of 3.4%, and analysts project that it will grow at a two-year CAGR of just under 22%. Tapestry is already off to a good start as its board of directors approved a 20% increase in the dividend earlier this year.
Tapestry hasn't been known for aggressive rate hikes in the past (and it even halted its dividend during the early stages of the pandemic), but with some strong growth ahead and a low payout ratio of around 30%, there's definitely potential for more dividend increases in the future.
3. Stanley Black & Decker
Stanley Black & Decker is a top name when it comes to tools. It is in 60 countries around the world and claims that 90% of cars and light trucks in Europe and North America use its fasteners. Tools and storage products actually accounted for the great majority (82%) of the company's $15.6 billion in total revenue last year. Stanley Black & Decker's industrial segment -- which includes its fasteners -- is the other key part of the business.
What's special about this stock is that Stanley Black & Decker is a Dividend King with a history of increasing its dividend payments for more than 50 years in a row. The surge in the housing market over the past couple of years could make new homeowners busy with repairs and renovations that help drive up the company's sales in future years.
And with a payout ratio of 55%, there's plenty of room for Stanley Black & Decker to continue hiking its dividend. Analysts projects that, over the next two years, its yield will rise at a CAGR of more than 14%. With a high yield of 3.6% today, a great track record, and room for more growth in its business and dividend, there's plenty of incentive for income investors to consider the stock now.
