There's not an investor out there who doesn't like a free payout from his or her investment. According to data collected by FactSet, as of the fourth quarter of 2011, 393 of the 500 companies in the S&P 500 index were paying a dividend. This is the highest level seen since 1999 and is all the more reason that we should be keeping our eyes peeled for the next great dividend.
There are two ways we can do this: First, we can go with traditionally strong dividend sectors like energy, utilities, and real estate investment trusts that pay out a significant portion of their income as a dividend. The other method is to look for stocks or sectors that are rolling in cash that could become the next great thing when it comes to a quarterly dividend check.
Today, I want to share with you my pick for the next great income-producing sector -- and for those of you at home guessing, no, it's not technology.
My sector choice for dividend juggernaut of the future is the credit card services industry.
If you think about it, owning credit service companies makes a lot of sense from varying perspectives. In terms of MasterCard
According to a statement by MasterCard's CFO, Martina Hund-Mejean, 85% of the world's transactions are still done in cash. That gives tremendous potential to MasterCard and Visa to grow their processing services in emerging markets and gives them all the potential to pay out enormous dividends in the future. MasterCard recently doubled its dividend and is currently sitting on nearly $5 billion in cash. Similarly, Visa boasts $2.7 billion in cash with no debt and could easily move its dividend higher even with an existing share repurchase program already in place.
It's a party and you're all invited
This isn't just a story about credit card processors, though. American Express
After not raising its dividend since 2007, American Express announced that it is boosting its payout by 11% to $0.20 quarterly in light of it passing the Federal Reserve's stress test. In addition, American Express also announced a 150 million share repurchase program.
Last week, Discover Financial blew away Wall Street's earnings predictions and reported growth among all of its lending and processing divisions. This comes on the heels of a mid-March announcement that it was doubling its share repurchase program to $2 billion after boosting its quarterly dividend by 67% in the previous quarter.
Even pre-paid debit services are getting in on the act. Green Dot
The dividends in this sector (minus Green Dot, which still does not pay a dividend) might seem minuscule now, but they have the opportunity to grow into giants. Emerging-market growth is fueling this sector's outperformance regardless of economic conditions and giving this sector the upper hand for future dividend increases.
Do you have a better choice for dividend growth sector of the future? Share it with your fellow Fools below and consider adding these five companies to your free and personalized watchlist.
If thinking outside the box interests you, then you might be curious to know what the smartest investors have been buying lately. Our analysts will share that info with you, right now, for free. Click here for the report!