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Though he certainly meant it in a broader sense, Mark Twain's attributed quote that "history does not repeat itself, but it rhymes" shouldbe taken to heart by investors everywhere.
As hopefully many investors realize by now, investing in a portfolio of the best dividend growth stocks for the long-term, especially when those dividends are reinvested, is one of the most powerful methods to achieve a secure, stable financial future.
This naturally begs the question: What are the best dividend growth stocks on the market today? To answer thatI ran a quick screen for U.S.-based companies whose average 5-year dividend growth rate matched or exceeded that of the S&P 500 index. Here's a short smattering of the names the screen produced.
Data Source: Bank of America Merrill Lynch
These names also happen to be longtime favorite stocks in several of the Fool's premium services, and for good reason. As such, let's dive into the specifics of what makesWells Fargo (NYSE: WFC), Walt Disney (NYSE: DIS), and Starbucks (NASDAQ: SBUX) incredible dividend growth options in 2016 and beyond.
One could look at Wells Fargo stock's recent skid and the swirl of negative news regarding its account cross-selling scam and understandably conclude that something has fundamentally changed the world's largest bank (by market capitalization). Though the current situation is by no means pretty, it also creates a unique opportunity to snap up shares of the megacap bank, which arguably has the best record of producing shareholder returns and dividend growthin all the land.
Looking beyond its present fracas the bank has a long-standing track record of discipline and efficiency that seems likely to remain once its current storm passes. However, for an alternative and in depth review pleaseread my Foolish colleague John Maxwell's nice account of the scandal and an argument against buying Wells here.
Keep this in mind, Wells Fargo has generated more than $5 billion in profits for 15 consecutive quarters. Even assuming some customer defection and slower account growth as part of the scandal-related fallout, Wells' core business model seems likely to continue to fuel significant profits through which it can fund continued dividend growth. Interestingly, a recent note from Bank of America Merrill Lynch raised the somewhat counterintuitive possibility that the cross-sell scandal could increase the need for the bank to execute on its capital return program in the near-term to prove to the market that the bank can indeed weather the storm.
Especially given the relatively diminutive $184 million fine it received, the company's core economics appear in place to do just that. As a precedent, JP Morgan followed a similar playbook, sticking to its capital return targets, in the wake of the 2012 London Whale trading scandal. To quote Warren Buffett, whose Berkshire Hathaway is Wells Fargo's largest shareholder, "be greedy when others are fearful, and fearful when others are greedy." It seems fair to argue this maxim applies to Wells Fargo shares today.
Image Source: Disney
One of the most beloved stocks in our Foolish universe, shares of Walt Disney have been stung in the past year by fears that cord-cutting could eat into its cable network profit center.
As the motor that propels Disney's financial engine -- accounting for 53% and 48% of operating income in the past three and nine months respectively -- Disney's Media Networks business receives understandable scrutiny from the investment community. The crux of the consternation regarding Disney's Media Networks business has been the meaningful decline in U.S. subscribers ESPN has witnessed in recent years, a number that has fallen from 99 million at the end of 2013 to an estimated 87.5 million by the end of the current fiscal year. Walt Disney has been able to buoy ESPN's profitability by forcing annual rate increases into its contract with cable distributors. With cord-cutting likely to continue and new costs from broadcast deals with the NBA and other sports leagues set to hit the books in coming quarters, ESPN's ludicrous profitability understandably remains a key point of distress among investors. However, such trepidation also overlooks a number of recent, positive developments at the House of Mouse.
In a broader sense, the outlook for Disney's three other reporting segments -- Parks and Resorts, Studio Entertainment, and Consumer Products & Interactive Media -- remains almost uniformly bullish. Here are just a few data points to consider. Disney's new Shanghai Disneyland has enjoyed a strong initial response, which should serve as a tent pole for continued expansion into the world's most populous nation. Disney's Studio Entertainment division plans to debut at least four more Star Wars movies and at least four more Pixar films before the end of the decade. Disney's Consumer Products & Interactive Media segment should benefit from the growth efforts in its film and parks units.
All of this is to say that Disney continues to diversify its sales and profit base by shrewdly leaning into its strengths. This laudable strategy virtually assures Disney, who has paid a dividend in one form or another since 1987, will once more increase its bi-annual dividend payment in December. So though headwinds do indeed exist, Disney remains one of the top dividend stocks to own in 2016 and beyond.
Image Source: Starbucks
Though the two names above each faced some kind of unique challenge, the outlook for coffee juggernaut Starbucks appears rosy. Though the company is mature in some ways, it still enjoys numerous growth opportunities that should help increase its sales, profits, and, yes, dividend payments well into the foreseeable future.
In terms of its geographic footprint, Starbucks enjoys an enviable and undeniable growth opportunity in China. Though Starbucks currently counts over 24,000 stores worldwide, only 2,300 operate in the world's most populous country. With rising standards of living likely to persist into the long-term, Starbucks' opportunity to expand its suite of coffee shops in China appears astounding. Our premium services argue that Starbucks' Chinese store count could quite plausibly match its U.S. total of 15,300 locations. This trend alone should provide ample opportunities for dividend growth. However, Starbucks' ace in the hole might actually be its Channel Development segment, which produces and sells Starbucks branded products into third-party stores. Though relatively small on a revenue basis, Channel Development's roughly 40% operating margin could improve the already highly profitable company's operating leverage and profitability as it continues to expand.
Though a fairly new dividend payer -- it paid its first cash divided in 2010 -- Starbucks has already increased its divided four-fold. The firm typically raises its dividend at the start of each year, meaning a hike is unlikely until its February payment. However, if you want an industry-leading company with a proven and highly profitable business model, Starbucks appears to be a dividend dynamo in the early innings of rewarding its shareholders with a steady stream of growing dividends.
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Andrew Tonner owns shares of Bank of America and Wells Fargo. The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares), Starbucks, Walt Disney, and Wells Fargo. The Motley Fool has the following options: short October 2016 $50 calls on Wells Fargo. The Motley Fool recommends Bank of America. 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.