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Top 5 Low Yield High Dividend Growth Stocks first appeared on the European Investor Network written by me!
Recently, the following question was put to me by a member of our community.
“Did I prefer high-yield low growth companies or low-yield high growth companies?”
Without hesitation, I answered the latter. However, a quick review of my portfolio revealed some flaws in my selection as I don’t have any low-yield, high-growth companies. A quick scan of some dividend accounts I follow also revealed that many, if not most, income investors tend to go for stocks with medium to high yields.
Although companies like those can be a great choice, there is something to be said about the virtue of patience.
Some companies might offer minimal dividend yields but are pretty profitable in terms of dividend growth and share price appreciating in the long run. Companies who are in their growth phase may prefer to reinvest free cash flow into the business instead. This can help companies with strong margins and profitability grow even faster and accelerate the share price.
Frequently, low yield but high dividend growth rate companies are overlooked but they might even provide better total returns than high-yield stocks altogether. High dividend growth companies can be especially great for those who are not yet looking to live off their dividend during retirement and have time to allow compound interest work its magic.
https://www.buymeacoffee.com/dividendtalk
But what low-yield, high dividend growth stocks specifically?
Are some low-yield, high dividend growth stocks better than others?
What are the real benefits of high dividend growth investment?
Sorting through all the clamor of the news can be quite hard. Luckily, to help you, we have compiled this list of the top 5 low yield high dividend growth stocks for 2021.
1. Apple (NASDAQ: AAPL)
Dividend Yield: 0.6%
Dividend Growth in 5 Years: 9.7%
Market Value: $2.4 Trillion
What can be said about Apple that countless other dividend growth investors haven’t said? First, this is a company that is infamous for its growth which, as projected on yahoo finance, can reach as high as 17.93% on average over the next five years. Apple also increased its dividend last April to the tune of 7.3%.
With new phones released almost every year and a foray into movies, home appliances, and other kinds of gadgets, one can expect Apple to see steady growth and dependability over the next few years.
Some investors, though, think of renewed fears about the death of the iPhone. It wasn’t too long ago that Apple sales were at an all-time low while android competitors like Samsung sought record-breaking revenue. But 2020 saw Apple’s resurgence with income that reached $111 billion in 2020 , 59% of which was thanks to the iPhone. In addition, an essential piece of data published by Wedbush states that over 40% of iPhone users have had their phones for more than three years now. So maybe there will be an upcoming wave of upgrades that could drive Apple’s market cap to $3 trillion.
Apple is a dividend giant in the investment world and despite its low-yield, they were the 4th biggest dividend payer in absolute terms in 2020.. Since 2012, the company has increased its dividend from $0.09 to $0.80. On top of this, an investment in AAPL 5 years ago would have provided a total return of 433%.
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2. Sherwin-Williams (NYSE – SHW)
Dividend Yield: 0.76%
Dividend Growth in 5 Years: 15.39%
Market Value: $76 Billion
Painting isn’t something that comes to mind when thinking about investing in companies. That being said, Sherwin-William’s track record speaks for itself. Consider for a moment that the dividend of Sherwin-Williams has been steadily increasing for the past 42 years, something investors should not take lightly in market terms. It has weathered market failures, recessions, and all sorts of financial crises and still managed to provide dividend growth for its investors.
Sherwin-Williams purchase of the paint-competitor Vaspar has also cemented its position as a dominant force in its industry. Now, the company holds the distinction as being one of the most extensive paints, coating, and home-improvement corporations in the world. Moreover, with the improvement in home-owning fundamentals and the increased popularity of interior design, the company will likely continue outpacing market growth by 1.5x. This trend is confirmed despite the recent pandemic, making Sherwin-Williams ideal for investors looking for stability or even a hedge against other more volatile investments. To set another example, a $10k investment into Sherwin-Williams 10 years ago would be worth nine times that amount today.
The only risk involved with a long-term investment into Sherwin-William stocks is that they rely heavily on the housing industry. A downturn in the real estate and housing market will inevitably affect the paint and home improvement industry. While they have shown it can handle downturns over 42 years, investors in this company need to watch the housing market to safeguard their investments closely.
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3. Costco (NASDAQ: COST)
Dividend Yield: 0.74%
Dividend Growth in 5 Years: 12%
Market Value: $189 Billion
Let’s get one thing for straight here, buying Costco shares will not get you any extravagant dividends, at least by today’s standards. But, as an investor, it helps to look at the profit potential in the broader picture. On that aspect, Costco is undoubtedly one of the better options.
Costco’s history dates back to the 1970s, when warehouse club retail stores began sprouting up in the USA. Costco, a shortened version of the Cost Company, first opened in Seattle in 1983. Since then, it has grown to be one of the largest membership-only retail chains in the entire world. Financially speaking, the average annual returns over the past five years alone has been 21%. In addition, the company is projected to see dividend growth of up to 12% for the next five years, making up for the low 0.8% yield.
Last April, Costco raised its dividends to the tune of 13%, amounting to 79 cents more per share and a special dividend of $10 per share. So even though Costco’s yield is less than stellar, they certainly know how to make up for it. Over the past decade alone, 25 percentage points have been marked as returns to investor’s pockets.
The only thing to be wary of when purchasing Costco shares is the rapid increase in E-commerce. Some investors fear that with the continued expansion of online selling, brick-and-mortar member’s only stores might start to see a dip in profits.
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https://focusondividends.blogspot.com/2021/06/costcos-growth-rates-are-driving.html
4. Zoetis (NYSE: ZTS)
Dividend Yield: 0.5%
Dividend Growth in 5 Years: 21%
Market Value: $96 Billion
Zoetis is a great example of a low yield high dividend growth company. Zoetis is an animal pharmaceutical company with a long history of growth in the market and is one of the largest animal pharmaceutical companies in the world. Though by no means a dividend giant, investors have long treated Zoetis shares as safe havens. The efficiency of their management and their propensity for research and innovation means their market value has been maintained even during the pandemic.
A testament to this is their superior performance in 2020. Despite the state of the world, the company’s revenue was up by 17%. This is partly thanks to the companion animals department and their release of the product, Simparica Trio. This has made waves among pet-lovers for its ability to prevent heartworm , ticks, fleas, roundworms, and hookworms.
Though the livestock department of their company took a hit during the pandemic, there’s still hope for recovery once the world economy begins to shift back to normal. In addition, prospects of Zoetis included the pending release of drugs like Librela and Solensia — both revolutionary treatments for osteoarthritis in dogs and cats.
All these things seem to point to the likelihood of Zoetis to see a continuing of its current success. The only possible downside with Zoetis stocks is that they certainly don’t come cheap. Its current price-to-earnings ratio is above 40, meaning you’re buying this stock as an investment in future growth as opposed to expectations of quick and easy money.
5. Teradyne ( NASDAQ: TER)
Dividend Yield: 0.3%
Dividend Growth in 5 Years: 10.8%
Market Value: $ 22 Billion
Teradyne Inc. is an automatic test equipment designer based in Massachusetts. Though not necessarily a household name, the company has made a name for itself with high-rolling customers like IBM, Samsung, Qualcomm, and Intel. In the year 2020 alone, the company garnered $3.1 billion in revenue.
Recently, the company has acquired Mobile Industrial Robots and UR, signifying its entry into the robotics industry. This commitment to future technologies has led many investors to believe Teradyne is the way to go when thinking of long-term investments.
The first quarter of 2021 alone shows how much force the company has in the market. Teradyne reported revenue of $780 million, growing by 11% compared to the first quarter of the previous year. In addition, the Industrial Automation division grew by 33% since last year, and the Testing division grew by 9%.
In terms of dividends, the company pays out quarterly an amount projected to increase by 66% over the next five years.
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Summary
Low yield, high dividend growth stocks are a great option for investors who have the time and patience to allow compounding truly work. In terms of total returns, these companies can outpace high yielding companies due to a mixture of share price appreciation and dividend growth. We have mentioned only five companies here but there are lots mote options such as Nike or Stryker. Let us know in the comments of any companies you feel should have made this list!
Happy Investing
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