What's better than a great dividend? A great dividend that continues to grow.
While there are plenty of solid income stocks on the market with increasing dividends, few are in a position to double their dividends over the next few years. But Texas Instruments (NASDAQ: TXN), Amgen (NASDAQ: AMGN), and Gilead Sciences (NASDAQ: GILD) could realistically do so. Here's why.
Continue Reading Below
For a semiconductor maker, Texas Instruments (TI) is downright ancient. The company was founded in 1951 and continues to be a leader in its industry. TI has also been a leader in rewarding shareholders: Its dividend has more than doubled in the past five years and quintupled in the last 10 years. The dividend now yields 2.41%.
There doesn't appear to be any reason TI can't double its dividend in the next five years. The company currently uses 47% of earnings to fund its dividend program. In the first six months of 2017, TI used returned just under $1 billion to shareholders through dividends. It also used $1.2 billion to buy back shares. Even better, the company has done an exceptional job of increasing free cash flow.
Texas Instruments isn't just a great income stock, though: It's a great stock, period. TI's share price has almost tripled in the past five years, largely because the company has provided processors for a wide variety of products from cars to smartphones. Although its growth might cool off somewhat in the coming years, Wall Street analysts still project annual earnings increases of more than 10%.
If you like Texas Instruments' dividend growth, you'll absolutely love Amgen. The big biotech first initiated a dividend in 2011. Since then, Amgen has more than quadrupled its dividend. In just the past five years, the company's dividend has more than tripled and now yields 2.41%.
Even with that impressive growth, Amgen still uses only 39% of earnings to pay out dividends. David Meline, Amgen's CFO, stated recently that the company remains committed to returning 60% of total cash flow to shareholders in the form of share buybacks and dividends.
It's possible that Amgen's cash flow could weaken a bit in the coming years, with the company facing headwinds for top-selling drugs Enbrel and Neulasta. However, Amgen has several promising pipeline candidates and a huge cash stockpile of close to $40 billion, including cash, cash equivalents, and marketable securities. Expect the company to put that cash to use in making strategic acquisitions to fuel future growth.
Gilead Sciences is the newcomer of the group when it comes to paying dividends. The biotech started its dividend program in 2015. In the subsequent two years, Gilead has raised its dividend by at least 10% each year. Its dividend yield currently stands at 2.46%.
There should be no problems for Gilead with future dividend increases. The company's payout ratio is less than 22%. Gilead also generates an enormous cash flow that the biotech has used in the past to fund both dividends and share buybacks, but CEO John Milligan has said the company won't prioritize buybacks as much in the future.
Gilead certainly has some big challenges, with sales for its hepatitis C franchise falling dramatically. However, the company recently announced plans to acquire Kite Pharma, a move that could generate significant growth over the long run. Even after the Kite buyout, Gilead will still have a large cash position that it can use to fund other acquisitions. Regardless, Gilead will certainly be in position to double its dividend over the next few years if it chooses to do so.
10 stocks we like better than Gilead SciencesWhen investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Gilead Sciences wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of September 5, 2017