2 Attractive Income Stocks Whose Dividends Could Double

By Brian Feroldi Markets Fool.com

Smart income investors know they should seek out dividend stocks that offer up strong growth prospects. After all, if a company's profit stream isn't growing, then its dividend probably won't either.

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So which income stocks offer investors enough growth potential to allow their dividends to double in time? Constellation Brands (NYSE: STZ) and InterDigital (NASDAQ: IDCC) look like two interesting candidates.

Image source: Getty Images.

A play on the "premiumization" of booze

Beer, spirit, and wine drinkers in the U.S. have been increasingly willing to pay up for a higher-quality experience. That's wonderful news for Constellation Brands, as this company's focus is on offering high-end alcoholic beverages. The company's products can be found in all aisles of the liquor store and include brands like Clos du Bois wine, Paul Masson brandy, and Black Velvet whisky. What's more, in 2013 the company made a big move into the beer business, thanks to its acquisition of Crown Imports from Anheuser-Busch InBev. The move added top-selling import brands like Corona, Modelo, and Pacifico to its lineup, and instantly turned Constellation into a major player in the U.S. premium beer market.

Constellation's focus on the high end has worked out beautifully over the last few years as premium products have gained shares in all market segments. When combined with the company's knack for making smart acquisitions, the results have been nothing short of amazing:

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STZ Revenue (TTM) data by YCharts. EPS = earnings per share.

The company's financial prosperity has allowed management to reward shareholders with regular buybacks and a newly initiated dividend. While the stock's dividend yield is only 1%, Constellation's payout looks poised for rapid growth from here, as its payout ratio is only about 20% of its trailing profits. That means there is ample room left for big dividend increases, especially if the company's products continue to take market share.

Connecting you to higher profits

The smartphone boom has benefited scores of companies over the last few years. The recent winners include InterDigital, a research and development company focused on mobile technology. The company owns a number of key connectivity patents that it licenses out to others in exchange for a hefty fee. While the company's business model makes its revenue and profits quite lumpy, the long-term trend is undeniable:

IDCC Revenue (TTM) data by YCharts.

While InterDigital's recent history is impressive, there are good reasons to believe that the company's next growth phase will be equally exciting. InterDigital has invested heavily in the development of fifth-generation (5G) wireless networks. This technology promises to greatly increase connectivity speeds, and is widely expected to be embraced by consumers and businesses alike once the technology is fully rolled out. That's likely to happen in development markets like the U.S. by 2020.

With a bright future ahead and profits rolling in, InterDigital's management team decided to use its excess capital to reward shareholders. While the primary method has been to buy back stock, the company also pays out a modest dividend of $1.20 per year. At current prices, that represents a yield of 1.5%.

While calculating the company's payout ratio is difficult since InterDigital's earnings are so volatile, analysts predict that the company's profits will grow in excess of 27% annually over the next five years. If the company can come anywhere close to hitting that target, then it looks like there's plenty of room for dividend boosts -- and share-price appreciation -- from here.

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Brian Feroldi has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Anheuser-Busch InBev NV. The Motley Fool has a disclosure policy.