Dividend growth investing is an investing strategy, where investors buy stock in companies which consistently raise distributions. This leads to higher dividend payouts overtime, and also leads to capital gains, as the market adjusts stock prices to reflect the higher income generated by the stock. Dividend growth does not just miraculously appear out of a thin air however. In order to get dividend hikes every year, the company has to generate earnings growth over time.
For example, back in 2001, Chevron Corporation (CVX) earned $1.85/share, paid a dividend of $1.325/share and traded at $44.81/share. Ten years later, in 2011 the company is earning $13.44/share, the dividend is $3.09/share. The stock is trading around very comfortable $100/share. The company is expected to distribute at least $3.24/share in 2012. Investors who purchased the stock a decade ago are sitting at handsome capital gains, and are earning 7.20% yield on cost.
In order to generate high returns from dividends and capital gains, investors need to focus on companies which will be able to earn higher amounts in the future. Corporations that have designated roadmaps to generate higher earnings per share, increase investors odds of receiving higher distributions and enjoying capital gains in the process. Below, you could find a list of four companies which have outlined their corporate strategies of achieving high earnings per share for the next several years:
The Coca-Cola Company (KO), a beverage company, engages in the manufacture, marketing, and sale of nonalcoholic beverages worldwide. This dividend king has raised distributions for 50 years in a row.
Coca-Cola's 2020 Vision Strategy strives for a high single digit annual EPS growth throughout this decade, driven through 5%-6% annual increases in revenues as the company expects 3%-4% yearly increase in sales volumes. The company is focusing more of its attention to still beverages like waters and juices, which stand the chance of delivering strong growth over time. In addition, growth could come from emerging markets such as China and India, where the average number of servings per capita is much lower than that of the US. The company is pursuing differing strategies to capture the imaginations (and dollars) of consumers in emerging, developing and developed markets. While the company might be focusing on growth through innovation and productivity initiatives in the developed markets, it might generate growth in emerging markets by heavy investing and maximizing volumes. In addition, the company is playing on strong long-term demographic trends of continued rise in the global population, increased urbanization as well as the expected rise of the middle class worldwide. Yield: 2.70% (analysis)
The Clorox Company (CLX) manufactures and markets consumer and institutional products worldwide. The company operates in four segments: Cleaning, Lifestyle, Household, and International. This dividend champion has consistently raised distributions for 34 years in a row.
In 2007 the company introduced its Centennial Strategy where the company is focused on achieving double-digit annual growth in economic profit. A key driver of the strategy is to accelerate sales by growing existing brands, including expanding into adjacent categories, entering new sales channels and increasing penetration within existing countries. The company also anticipates using its strong cash flow to pursue growth opportunities and increase shareholder returns. For an update on the results from the strategy, check this press release.
Basically the company will try to deliver further growth through an ongoing focus on consumer megatrends. In addition to that the company will be targeting a 2% sales growth through product innovation. The company projects sales growth of 3-5 percent, excluding acquisitions and expansion into new geographies through 2013. Last but not least Clorox will target margin expansion and maximizing cash flow through implementation a continued robust cost-saving program and maintaining price increases the company has taken. Yield: 3.40% (analysis)
Kimberly-Clark Corporation (KMB), together with its subsidiaries, engages in manufacturing and marketing health care products worldwide. The company operates in four segments: Personal Care, Consumer Tissue, K-C Professional and Other, and Health Care. This dividend aristocrat has consistently raised dividends for 40 years in a row. As with other consumer products companies, the growth is likely to come from developing and emerging markets, rather than developed markets. Developed markets could benefit from cost cutting and efficiency profits, which would decrease the total price of doing business. Under the company’s global business plan, announced in 2003, it is looking for annual sales growth in the 3%-5% range, EPS growth in the mid to high single digits and dividend increases in line with earnings growth. For more on the global business plan, check this document. Yield: 3.80% (analysis)
IBM has publicly announced its goal to hit $20 in earnings per share by 2015. The company is one of the most consistent repurchasers of stock, having reduced the total shares outstanding by 50% since 1995. The company expects that one third of the gains would come from revenue growth driven by organic growth and acquisitions. The company is relying on growth markets, its business analytics segment, its smarter planet initiative as well as its cloud and next generation data center businesses to deliver revenue growth. Almost one third of the growth would come from share buybacks as well. The remainder would come from increased productivity in its core segments, as well as continuing its focus on offering high value to its customers. Yield: 1.70% (analysis)
Full Disclosure: Long CLX, KMB, KO, CVX