Dividend stocks can be excellent sources of recurring income for your portfolio. Stocks that increase their payouts over time can be even more valuable for long-term investors, as this income could rise in the years ahead.
Three stocks that recently boosted their dividend payments are Eli Lilly (LLY +1.83%), Mastercard (MA +0.49%), and Enbridge (ENB +1.66%). Here's a closer look at why these three can be excellent dividend stocks to buy and hold for the long haul.
1. Eli Lilly
Eli Lilly is known for being a solid growth stock, but investors shouldn't discount its potential to be a solid income-generating investment as well. Earlier this month, the company announced an impressive 15% increase in its dividend.
Large dividend hikes haven't been unusual for Eli Lilly. It announced a 15% increase last year as well as the year before that.
NYSE: LLY
Key Data Points
The new quarterly per-share payment of $1.30 is now double the $0.645 that the company was paying its shareholders back in 2019. That averages out to a compounded annual growth rate of 15%.
Eli Lilly has been generous with dividend increases as the business has been doing well. The company is still likely to experience strong growth in the years ahead. Its weight-loss treatment Zepbound, which could generate more than $50 billion in annual revenue at its peak, recently obtained approval from the Food and Drug Administration. I wouldn't be surprised to see more double-digit increases for the dividend in the future.
The company's payout ratio hovers around 80%, which is a tad high. But with more growth on the horizon, that percentage should come down. The stock yields a fairly modest 0.9% (the S&P 500 average is 1.5%). However, between the growth opportunities the stock possesses and the potential for the payout to get higher in the future, this can still make for an excellent long-term investment.
2. Mastercard
The credit card giant announced an even larger increase to its dividend this month. Its new quarterly per-share dividend of $0.66 is 16% higher than the $0.57 it was previously paying.
It has also doubled its payouts over the past five years. In 2019, Mastercard was paying investors $0.33 every quarter, but with the increase, the company's dividend yield is around 0.6%. With a payout ratio of less than 20%, there's ample room for more dividend hikes in the future.
NYSE: MA
Key Data Points
The company has been growing at a strong rate this year. Sales through the first nine months of 2023 totaled $18.6 billion and increased 13% year over year. Net income of $8.4 billion has also increased by a similar percentage.
The stock looks like a good buy, even in the event of a potential downturn because as budgets tighten up, consumers may rely more on their credit cards.
3. Enbridge
The only stock that pays an above-average yield on this list is Canadian pipeline company Enbridge. Last month, the company announced a relatively modest 3% rate increase to its dividend. It's the 29th straight year that the oil and gas company has increased its dividend.
The company also announced that it expects its distributable cash flow (DCF), which is a key metric when assessing the safety of its payout, will increase by a similar percentage next year.
NYSE: ENB
Key Data Points
With a yield of 7.6%, Enbridge is far and away the highest-yielding stock on this list. High yields can signal a dividend cut, depending on how various other metrics shape up. Even more concerning is the company's payout ratio at the moment. It currently exceeds 200%, which is unsustainable for most companies.
However, because of the nature of the business model Enbridge operates under, a better metric for determining the sustainability of the payout is to look at its payout ratio in comparison to its discounted cash flow (DCF), which excludes non-cash expenses such as depreciation and amortization. Based on DCF, Enbridge expects its payout ratio to be a more sustainable 60% to 70%.
The company announced a $14 billion acquisition earlier this year. It will acquire assets from Dominion Energy that will expand its gas distribution business, making it the largest gas utility company in North America (based on volume). While there are concerns that it will add debt to the business, in the long run, it could make the business more diverse and a better investment overall.
Enbridge can make for a top stock to own for investors who want exposure to oil and gas and want a great dividend.
