For investors who invest in shares to increase their savings, the big challenge is to select stocks that not only hold capital, but also offer a good return. Some investors are chasing higher yields and ignoring the risk involved. A simple way to gradually increase savings is to look for companies that increase their dividends and are in a position to keep them.
By buying solid stocks with dividend growth, you choose companies with good financial health that enable them to perform better than other parts of the market. According to a Goldman Sachs asset management business, companies that consistently grew their payouts produced a 14-fold better return than non-dividend paying companies between 1972 and 2014.
With that theme in the background, below are two examples of large dividends for dividend growth:
1. Apple
Apple Inc. (NASDAQ 🙂 is widely regarded as a fast-growing technology exchange that is bought to achieve quick returns. That vision is not entirely wrong, given the enormous innovation machine from Apple that continues to produce fast-selling consumer products, such as iPhones and Apple Watch. The shares have grown almost 700% since they were first sold in December 1980 at $ 22 each, and about 66% in the last three years. They closed 1.1% on Friday at $ 174.97.
Apple shares
But we believe Apple is also a great candidate for your long-term income. As the company enters an adult phase of its growth cycle, it is preparing to return more and more cash to investors through its dividends and share repurchases.
After the dividend has been increased by 16% in 2016, Apple now pays $ 0.73 per quarter, which has risen by more than 10% per year in the past five years. The company has been running its payouts for the past seven years and there is no sign that the maker of iPhones will stop this exercise. With a payout ratio of just 24% and a huge cash-hoard, Apple is in a good position to return capital.
Even if you take into account the bear case against Apple, which assumes that it has seen the best days of its flagship iPhone sales, Apple's ability to generate money for its shareholders remains intact. The company is expected to generate sales of $ 255 billion in the current year, with an estimated growth of 13% per year over the next five years, according to consensus analysts' forecasts
2. Chevron
If you only concentrate on the changeable nature of energy markets, it is difficult to find value in integrated US oil companies. But after years of cost savings, technological progress and rationalized investment approaches, some global oil and gas producers offer an excellent entry point for income investors. And the American super-major of oil, Chevron (NYSE 🙂 is certainly one of them.
Since October 2001, the shares have risen 174%, while they have increased by almost 29% in the last three years. They rose 2.1% on Friday and closed at $ 122.03.
Chevron shares
Chevron, the second largest global oil producer, performs integrated operations with both upstream and downstream exposure and a separate petrochemical division. This diversified business model offers an excellent cover against falling.
Even if the company loses money on oil and gas production, its refineries for energy products and petrochemical commodities can still generate money, thus moderating the impact of the slump in the oil market. Evidence of this strength came in the fourth quarter of last year, when Chevron made a profit and produced strong cash flows during the period, despite the dip of 38% of oil.
And when it comes to dividends, Chevron has been reliable and generated higher income every year. Over the past 10 years, the quarterly payout, now at $ 1.19 per share, has grown about 8% per year. We believe that this growth rate will accelerate in the future, helped by the improving cash flows of the company.
Chevron's free cash flow as soon as dividends are paid has paid $ 8.3 billion in 2018 after having been in the negative territory for the past five years when these major oil companies went through the oil survey that began in 2014, according to data from Bloomberg.
But with a reasonable payout ratio of 58 and a fairly attractive dividend yield of 3.9%, we believe that Chevron is now ready to start generating revenue again. With the increasing dividends you also benefit from the aggressive $ 10 billion share purchase plan.
Bottom Line
Investing in companies with solid cash flow flows and low payout ratios is a proven way to gradually improve your return on savings. There is certainly a higher risk when investing in shares, but you limit that risk by investing in dividend stocks.
Both Apple and Chevron are good examples of such shares. Energy and gas companies, telecom companies and real estate investment funds are other areas that regularly provide income that you can research to diversify your portfolio.
