3 Great Income Stocks Whose Dividends Should Double

Income investors like dividend stocks because the combination of current income and growth potential offers an attractive risk-reward relationship. Yet even some companies that have amply demonstrated their commitment to giving dividend growth to their shareholders don't always pay out as much as they could. In particular, Sherwin-Williams (NYSE: SHW), Cintas (NASDAQ: CTAS), and Tootsie Roll Industries (NYSE: TR) could all double their dividends without endangering their ability to earn enough to cover payouts and reinvest in growth initiatives.

Sherwin-Williams paints a pretty picture

Sherwin-Williams has been a huge success story for investors over the years. Dividend investors have to be happy about the fact that the paint specialist has managed to boost its dividend every single year for 39 straight years, with the most recent increase coming in February.

However, what shareholders probably aren't entirely satisfied with is the size of those increases. Sherwin-Williams only managed a $0.01 per-share boost to its quarterly payout, and the current yield is less than 1%.

Sherwin-Williams paid less than 30% of its earnings over the past 12 months in dividends, and its prospects have never looked better. A healthy housing market continues to drive interest in consumer paint, and with the company's merger with fellow paint peer Valspar now complete, Sherwin-Williams has greater capacity to take advantage of favorable industry conditions. Doubling the dividend would put Sherwin-Williams in line with the average market dividend yield of around 2%, while still leaving its payout ratio low enough to be sustainable.

Cintas aims to move in the right direction

Slightly more encouraging on the dividend front is Cintas. The company specializes in uniform rental and other business services, and it has a long history of annual dividend increases that dates back 34 straight years. Yet with a dividend yield of less than 1%, Cintas isn't letting its shareholders participate fully in its growth.

Still, Cintas has put more effort into dividend growth than some of its peers. Last year's boost to its annual payout amounted to 27%. With solid results to start out the new fiscal year, Cintas is seeing a favorable environment in the job market translate into stronger fundamental business conditions. A current payout ratio of almost exactly 30% leaves Cintas room to consider a much larger increase later this month, which is typically when the company has rewarded its shareholders. Even a doubling of the dividend would leave Cintas with a typical 2% yield and a sustainable payout ratio of 60% of earnings.

A treat for dividend investors

Finally, Tootsie Roll Industries is well-known for its namesake candy. The stock has also been a tasty treat for its longtime shareholders, because the company has made increases to its dividend each year for 51 straight years. The only downside: a lackluster yield of just 0.95%, and sluggish past dividend growth of just 3% in its March 2017 payout increase.

Of these three stocks, Tootsie Roll has the greatest challenges to overcome. Current consumer trends favor healthy eating, and Tootsie Roll remains focused on its candy offerings. With much of Tootsie Roll's business coming from impulse buys at checkout aisles, the decline of brick-and-mortar shopping in favor of online purchases has also crimped Tootsie Roll's sales growth. Yet with the company paying out just a third of its income, Tootsie Roll could afford to reward its shareholders better even if its fundamental business is unable to grow earnings substantially in the immediate term.

Which stock is most likely to see dividends double?

Tootsie Roll is controlled by family shareholders, while Sherwin-Williams appears determined to remain fiscally conservative in light of its recent merger and concerns about future industry conditions. Cintas is the most likely to double its dividend, although it's likely to take a few years to get there. Keep your eyes on the uniform-rental specialist to see whether shareholders get a bigger payday later this month.

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Dan Caplinger has no position in any of the stocks mentioned. The Motley Fool recommends Cintas and Sherwin-Williams. The Motley Fool has a disclosure policy.