Building a stream of dividends to fatten your wallet every quarter is a lot easier when you're willing to play the long game. By holding shares of businesses that have a lengthy streak of hiking their quarterly cash returns to shareholders, you'll directly benefit from their underlying growth.
And the more patient you are with reinvesting your payouts back into your position, the more money you'll get in the long run. So let's look at a pair of companies that can afford to pay you a bigger and bigger dividend every year to see if they might be a fit for your portfolio today.
1. AbbVie
AbbVie (ABBV 0.25%) is a passive-income machine, and this is all thanks to its ability to churn out therapies at an industrial scale. Its drugs make trailing-12-month net income of $13.3 billion, a sum that rose by 58.9% over the last three years. Strong earnings growth is likely to continue in the long run -- after a short delay, that is.
Generally, pharma companies like AbbVie are incentivized to develop new medicines because they know that competitors won't be able to copy their products and eat their lunch for a while after regulators give the go-ahead for commercialization. But eventually, exclusivity protections expire, and competitors can develop generic copies.
Due to the long-expected loss this year of its exclusivity rights to sell one of its leading drugs, Humira, management anticipates stagnant expansion until 2025, when a combination of new drug launches should power it back to growth through the end of the decade. By 2027, its new medicines are expected to bring in more than $21 billion per year, which is more revenue than Humira had at its peak.
And it's the near-term dip in revenue that's helping to keep the stock's dividend yield high, since investors require a higher return in exchange for taking on the risk. That's also why it's worth buying shares soon, before the company has fully proved it will return to growth.
The stock's forward dividend yield is just a touch above 4%, which won't make you rich today, but it's a start. More important is that with 51 consecutive years of dividend increases, AbbVie is a member of the elite Dividend Kings club.It largely inherited its royal credentials from Abbott Laboratories, a much older business with a long history of dividend hikes that AbbVie was spun off from in 2013.
Still, over the last five years, its payout has climbed by 54%. And with a payout ratio around 74%, the company should have enough leeway for additional hikes.
2. Mastercard
Mastercard's (MA -1.19%) debit and credit card products are a big part of the reason it's a great stock for generating dividend income. In the last 10 years, its dividend grew by an impressive 850%, financed by tiny fees taken from the colossal number of transactions it processes, which in the fourth quarter of 2022 totaled more than $2.1 trillion globally in gross dollar volume of sales.
To continue growing, it will be tapping into long-running and powerful economic trends like digitization of payments, rising consumer spending, and increases in transactions across national borders.
Though competitors like American Express are continuously vying for its slice of the pie, Mastercard remains more widely accepted. And its quarterly profit margin has only grown over the last 10 years, so the margin-compressing impact of fierce competition doesn't seem to be in play, which is a plus.
But its teensy dividend yield of 0.6% means that you'll need to be patient to build up a passive-income stream from an investment. The best idea is probably to make continuous purchases of Mastercard stock at regular intervals so that you can build up a significant position while getting the advantage of dividend growth over time. As for the sustainability of its dividend, Mastercard is well-positioned; its payout ratio is an insignificant 19% of its earnings, which were almost $2.5 billion in the fourth quarter of 2022.
