Investing in companies with strong and sustainable dividend growth is one of the most popular and time-proven investment strategies for superior returns. Tiffany (NYSE:TIF), Hasbro (NASDAQ:HAS), and Lowe's (NYSE:LOW) have doubled their dividend payments through the last five years. Perhaps more important, they have the fundamental strength to continue delivering substantial dividend growth for years to come.
Tiffany keeps shining
Tiffany is arguably the most respected and valuable brand in the jewelry and accessories business. A differentiated brand, an image of prestige, exclusive designs, and convenient retail locations provide strong competitive advantages and superior pricing power for the company.
In an industry in which most of its competitors need to keep their margins low in order to compete on price, Tiffany enjoys an outstanding operating margin of more than 19% of sales.
The company has been expanding its international presence lately, and Asia is looking like a particularly exciting growth opportunity for Tiffany. Sales in the Asia-Pacific region increased by a remarkable 27% in the third quarter of 2013 on the back of a big increase of 22% in comparable-store sales in the region during the quarter.
Tiffany has increased its dividends in each of the last 11 consecutive years, and distributions have doubled over the last five. The dividend yield is quite modest in the area of 1.6%, but the dividend payout ratio is remarkably low at 37% of earnings.
Considering its fundamental strength and conservatively low dividend payout ratio, investors have valid reasons to expect material dividend growth from Tiffany in the medium and long term.
Hasbro is playing the dividend growth game
Hasbro is the second-largest toy company in the U.S. behind Mattel, but the company has nothing to envy when it comes to the value of its intellectual properties and strategic alliances. Hasbro owns many of the most popular brands in the industry, including names like Sesame Street, Monopoly, Transformers, Star Wars, and My Little Pony, among many others.
These differentiated brands generate competitive advantages for the business and growing cash flows for shareholders. Hasbro has increased dividends by more than 20% annually over the last five years, from a quarterly $0.16 per share in 2008 to a current quarterly dividend of $0.40 per share. This represents a 150% total increase in dividends over that period.
The dividend yield is quite attractive in the area of 3.1%, but dividend growth will likely slow down in the coming years, as the payout ratio is now in the area of 70% of earnings.
Hasbro will most likely continue delivering consistent dividend growth in the future, but the dividend growth rate will probably be in line with earnings growth since the payout ratio, even if safe and sustainable, does not provide much upside room.
As a reference, the company raised its dividend by 11% in 2013. Expecting a dividend growth rate near the low double digits or high single digits sounds quite reasonable for a stable and mature business like Hasbro.
Lowe's is built on solid ground
Home-improvement retailers operate in a cyclical industry, and the sector is clearly very exposed to the volatility and uncertainty from fluctuations in real estate demand. You would't have guessed that by looking at Lowe's and its extraordinary track record of dividend growth, though.
Lowe's is part of a select group of especially resilient U.S. companies that have been able to increase dividends over the last 50 consecutive years, without exception. Even during the real estate crash in 2008 and 2009, Lowe's was strong enough to continue rewarding shareholders with growing dividend distributions.
The company raised dividends by 6.25% in 2009, when the economy was going through a really dismal situation and the housing market was even worse than that.
Lowe's has more than doubled its dividend through the last five years, from $0.08 per share to $0.18 per share quarterly. Its dividend yield of 1.5% is not particularly high, but the company has a payout ratio of only 32% of earnings, which provides plenty of opportunities for further dividend growth in the future.
When it comes to investing in high-quality businesses, finding companies with dyamic and sustainable dividend growth can be a clear sign of fundamental health. Tiffany, Hasbro, and Lowe's have doubled their dividends over the last five years, and they are well positioned to continue delivering growing payments for investors on a forward-looking basis.
Fool contributor Andrés Cardenal has no position in any stocks mentioned. The Motley Fool recommends Hasbro and Mattel. The Motley Fool owns shares of Hasbro and Mattel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.