Sometimes it's better to invest in companies that have a long and steady history of raising dividends and returning capital to shareholders than it is to invest in companies that offer high yields, which might not be sustainable. Whereas plenty of businesses can sustain paying out at a high dividend yield for a short period, few have the staying power to hike their payout repeatedly over time, and the ones that do tend to be solid investments.
With that in mind, let's look at two attractive dividend stocks that might not yield enough to make it past your screener search. Yet, both of them are great purchases, especially if you plan on holding them for years and years to get the full benefit of their plodding dividend growth.
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1. Steris
Steris (STE 0.62%) sells to hospitals and laboratories the sterilization equipment and consumable products, like sanitary wipes, that are needed to maintain a clean and safe working environment. As boring as sterilizing devices like autoclaves and laboratory glass washing stations may sound, they're actually critical for providing high-quality medical care, performing good research, and making sure that biomedical waste is safe to dispose.
So, as the healthcare sector grows, Steris is a dead ringer for growing in lockstep as companies need to sterilize more things to keep up with a higher level of output.
And that's precisely why its quarterly net income rose by 68.2% over the last five years, reaching $123.8 million in its fiscal third quarter. Importantly, of its $4.6 billion in revenue for 2022, management estimates that a whopping 80% of its sales are recurring in nature, as individual hospitals and laboratories tend to buy the same volume of sterilization goods every quarter.
The other 20% of its sales are of hardware, which typically also implies a stream of recurring revenue when customers need help with maintenance or replacement parts for their sterilization devices.
With a business model that yields such reliable revenue, Steris is more than stable enough to pay a dividend to its shareholders. While its forward dividend yield is a hair under 1%, which means it won't be making you rich anytime soon, the company has a long history of hiking the dividend each year. In the past 10 years, its dividend rose by 123.8%, easily beating the 112.6% increase of the SPDR S&P 500 ETF Trust in the same period.
Dividend growth at that pace will take some time to pay off, but if you're willing to hold onto your Steris shares for a long time, there's a good chance that the total return of your shares will outperform the market on an annual basis.
2. Apple
Apple (AAPL -0.81%) is another stock that's ideal for buying soon and holding for decades as it's one of the world's most valuable businesses -- and its growth model also yields plenty of recurring revenue. You're probably already familiar with the company's product lineup of Mac computers, iPhones, peripherals, and its entire software ecosystem. Most of its offerings are designed for regular replacement cycles as well as for generating subscription revenue to Apple's software services.
For example, a smartphone purchased in 2022 will be replaced by the consumer in an average of 2.6 years, according to Statista. That means people will pay upward of $800 every 2.6 years, while also likely paying between $1 and $10 monthly for iCloud services like storage. So it's no surprise that Apple increased its quarterly revenue by 168.7% in the last 10 years, nor is it a surprise that its quarterly net income rose by 214.2% to reach a cool $30 billion in its fiscal first quarter of 2023.
Much like Steris, Apple's dividend yield is a measly 0.6%, but its dividend's growth of 111% during the last 10 years is somewhat deceptive. Since the close of fiscal 2012, the company has bought back $573.3 billion in its shares, meaning that when including the $135.6 billion in dividends it paid out during that time, it has returned $740.3 billion to its shareholders.
So if you're willing to buy this stock and hold it, you'll be getting a significant return in the form of share price appreciation, even if the dividend isn't growing as fast as it might be with other businesses. And that means while you shouldn't expect the yield to grow by much, you should still expect your investment to make plenty of money over time.
