If you're investing in dividend stocks, you should prioritize investments that increase their payouts. That way, the recurring dividend income you receive can potentially stay ahead of inflation.
A couple of companies that have boosted their dividend payments by more than 10% recently are UnitedHealth Group (UNH 0.30%) and Shell (SHEL). Here's a closer look at why these two industry giants could potentially be great long-term buys for income investors.
1. UnitedHealth Group
On June 7, health insurer UnitedHealth Group announced that it would be increasing its dividend payment by 14%. This month, shareholders will receive a quarterly cash dividend of $1.88, which means the stock is yielding right around 1.6%, in line with the S&P 500 average.
Although it's a big rate increase for UnitedHealth, the company's payout ratio is just 30%, which is relatively modest and leaves plenty of room for increases in the future. And over the past decade, it has been generous when it comes to growing its payouts:
UNH dividend; data by YCharts.
It appears likely that UnitedHealth will continue to grow its dividend for the foreseeable future since the company's financials are strong. In four of the past five quarters, net income has totaled at least $5 billion. This stability and consistency make it a good long-term buy.
The company recently alerted investors to higher costs coming this year due to an increase in surgical procedures, but with UnitedHealth's strong financials, it shouldn't be a big concern for dividend investors.
And the company has been diversifying through acquisitions, including its recently closed $5.4 billion purchase of home health company LHC Group, which will only add to its stability in the long run.
For investors seeking a dividend growth stock, UnitedHealth should be near the top of their list. This is an excellent investment to hang on to for years.
2. Shell
Shell also announced a generous dividend increase this month, bumping its quarterly payments up by 15%.
While the oil and gas company did decrease its dividend in April 2020 during the early stages of COVID, things have looked much better for the industry since then, with oil prices recovering and strong travel demand helping them remain fairly stable in recent months. With the increase in the dividend, Shell's stock will now yield around 4.4%.
A top oil producer like Shell can experience significant volatility, but with oil demand appearing to stabilize, this should now be a safer buy. The company is coming off some stellar earnings numbers in recent quarters:
SHEL net income (quarterly); data by YCharts.
At around 20%, Shell also has a fairly low payout ratio. Even if there's a drop in oil prices, investors should feel fairly confident in the company's ability to continue raising dividends, especially now that the coronavirus is much less of a concern.
Trading at only five times its earnings, Shell is a cheap stock, offering a good margin of safety for investors worried that its future earnings numbers might not be as strong as they have been of late.
