3 Attractive Income Stocks Whose Dividends Could Double

By Markets Fool.com

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Dividend stocks can be the foundation of a great retirement portfolio. Not only do the payments put money in your pocket, which can help hedge against any dips in the stock market, but they're usually a sign of a financially sound company. Dividends also give investors a painless opportunity to reinvest in a stock, thuscompounding gains over time.

However, not all income stocks live up to their full potential. Using the payout ratio -- i.e., the percentage of profits a company returns to its shareholders as dividends -- we can get a good read on whether or not a company has room to increase its dividend. Payout ratios between 50% and 75% are ideal. Here are three income stocks with payout ratios currently below 50% that could potentially double their dividend payments.

Novo Nordisk A/S

We'll begin the week by thinking large with Danish megacap Novo Nordisk A/S (NYSE: NVO) in a sector not traditionally known for dividend income, healthcare.

Novo Nordisk has run into a bit of a brick wall in 2016, with its share price down 30% year to date. This biggest issue for Novo Nordisk, a company that prides itself on its diabetes care and obesity therapeutics, has been insurers putting their foot down, which is rare to begin with. The nation's largest pharmacy-benefits management company, Express Scripts, removed diabetes products Victoza, Novolog, and Novolin from its formulary. These are therapies that combined to represent more than 20% of Novo Nordisk's product sales in the first half of 2016, so there are clear worries about the company's near-term growth prospects.

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However, Wall Street may be overlooking Novo Nordisk's pipeline and its dominance within diabetes care. For example, earlier this year Novo Nordisk launched its next-generation diabetes treatment Tresiba in the United States. This isn't to say that Tresiba won't face a growing sea of competition in the diabetes space, but its long-acting formulation (42 hours) should help draw in new patients while transitioning those away from prior-generation basal insulin, Levemir, to Tresiba. For its part, Novo Nordisk is angling to offer copay cards to uninsured patients to help keep their costs down for up to two years.

Perhaps even more important than Tresiba is the potential Food and Drug Administration approval of xultophy, a combination therapy of Tresiba with GLP-1 drug Victoza. As noted by Bernstein analyst Ronny Gal via FiercePharma, xultophy not only led to a nearly 2% reduction in HbA1c during clinical studies, but the side effects of both drugs when combined were quite tame, allowing dosage to be stepped for an improved clinical benefit. All told, this combination could have multibillion dollar potential, which is on top of the blockbuster sales expected for Tresiba by itself.

Having such a large share of the diabetes care market -- nearly 40% in China, over 30% in Europe, and near 25% in North America -- also affords Novo Nordisk excellent pricing power on its therapies.

It's quite possible Novo Nordisk could see its semiannual dividend payouts surpass $2 per year by 2025 if its next-generation diabetes care therapies are successfully launched and find the mark with physicians and patients.

Church & Dwight Co., Inc.

Next, personal care, household, and specialty products manufacturer Church & Dwight Co., Inc.(NYSE: CHD) could be worth a look for income seekers desiring a stable investment.

The biggest enemy to the share price of a consumer goods company like Church & Dwight is a strongly growing economy. Economic strength often leads investors to seek out growth companies, of which Church & Dwight is not. Church & Dwight is the company behind brands Arm & Hammer, Oxiclean, Trojan, and Vitafusion, to name a few. But, what Church & Dwight may lack in high growth, it makes up for in other aspects.

Image source: Flickr user Mike Mozart.

For instance, Church & Dwight's household, cleaning, and specialty products are mostly inelastic. What this means is that regardless of how well or poorly the U.S. economy is performing, Church & Dwight's products are being placed into consumers' shopping carts. What's more, because Church & Dwight's products are mostly inelastic, it allows the company to pass along price hikes that often match, or surpass, the national rate of inflation, allowing for the company's cash flow to be quite predictable (which Wall Street seems to like).

Instead of mergers and acquisitions, which is another typical growth driver of consumer goods companies, Church & Dwight is relying on innovation to drive its top and bottom lines. Thus far in 2016 the company has introduced a new beauty line of adult vitamins under the Vitafusion brand, launched a new clumping cat litter, and brought two new condoms under the Trojan brand to market. Clearly this innovation is working, with Church & Dwight on track for 3% to 4% organic growth in 2016 and expected margin expansion of 110 basis points on account of higher sales and lower commodity costs, offset by a more aggressive marketing budget.

Finally, and this is merely an ancillary thought at this point, Church & Dwight has been the subject of buyout rumors this year given its consistent organic growth and strong brand-name presence. In May, Reckitt Benckiser was believed to be prepping to make a bid for the company, but shares of Church & Dwight quickly retreated after denying those rumors. With industry consolidation an ongoing trend in the current low-rate environment, it's possible Church & Dwight could attract the attention of its larger peers.

Currently paying out $0.71 annually for 1.5% yield, but on track to hit $2.45 in full-year EPS by 2019 per Wall Street's consensus, Church & Dwight would appear on track to double its payout over the coming five to 10 years.

Fluor Corporation

Finally, income investors looking for an exciting long-term investment opportunity in the industrial sector may want to give Fluor Corporation (NYSE: FLR) a closer look.

Fluor is an engineering and construction company that helps to build and maintain facilities primarily for the oil and gas and mining industries. As you may have rightly surmised, the weakness in crude oil prices over the past two-plus years have constrained the number of new contracts awarded to Fluor, but it's also struggled with select commodities, such as coal, slumping in price. During the second quarter, Fluor delivered $126 million in profit from its energy, chemicals, and mining segment, which was down substantially from the $229 million it recorded in Q2 2015.

Image source: Fluor.

While clearly facing some challenges, there's a lot to like about Fluor's longer-term growth prospects. The best growth driver for Fluor remains the energy industry. In particular, Fluor has the ability to play both sides of the coin. On one hand, Fluor is intricately involved in the build out and maintenance of nuclear facilities and facilities used in the production and processing aspects of the oil and gas industry. If energy demand and long-term crude prices increase as expected, Fluor should remain quite busy. It also is a leader in carbon capture recovery technologies, allowing it to benefit from U.S. and global regulations that cap carbon emissions. This play between growing energy demand and capped carbon emissions in certain countries works to Fluor's benefit.

The other factor working in Fluor's favor is that it has an enormous backlog, which is a reflection of the company being an engineering industry leader. Fluor's energy, chemicals, and mining segment ended Q2 2016 with a $25 billion backlog, which sits atop the $12.7 billion backlog in industrial, infrastructure, and power; $5.8 billion in government; and $3.7 billion in maintenance, modification, and asset integrity. Altogether, Fluor's consolidated $47.3 billion backlog, including $6.4 billion in new contracts in Q2, works out to about 10 quarters' worth of revenue. In other words, while demand may have slowed in select segments, Fluor has plenty of contracted work to fall back on.

With an annual payout totaling $0.84 for a 1.6% yield, and full-year EPS consistently coming in well above $3 in a weaker demand environment, it seems reasonable to expect Fluor to double its dividend over the coming decade.

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Sean Williamshas no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen nameTMFUltraLong, and check him out on Twitter, where he goes by the handle@TMFUltraLong.

The Motley Fool owns shares of Express Scripts and Fluor. It also recommends Novo Nordisk. 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.