5 large stocks of income that could double their dividends

As investors, we all love our dividends. But what better? Dividends growing steadily over the long term.

And, although dividend investors should of course pay attention to a stock's current performance to gauge its growth potential, they should also look at the current distribution ratio of retained earnings, the ability of a company to increase earnings per share over time and management outlook. capital allocation policies. All of these factors will determine the overall health of the company and, by default, the health of the dividend.

If you're looking for strong dividend stocks to buy and hold over the long term, here are five out of five industries that could double their dividends in the coming years.

Industrials: Oshkosh

Dividend yield: 1.44%

Distribution ratio: 13%

A real definition of a stock of value could be Oshkosh (NYSE: OSK), which makes (very cool) heavy industrial vehicles such as access to an aerial work platform, all-terrain vehicles for the US military, fire trucks and other emergency vehicles, as well as utility vehicles such as concrete mixers and garbage trucks.

This diversified portfolio is important for Oshkosh, as the purchase of heavy equipment can be a bit cyclical. Currently, investors are worried about a slowdown in the company's access equipment segment, which accounts for about half of Oshkosh's sales. This is not only due to macroeconomic concerns, but after the very strong years of sales of vehicles with access, the current fleet of vehicles is relatively new and the appetite for upgrades is likely to choke next year.

At present, however, the rest of Oshkosh's activities appear to be relatively consistent and robust. In addition, management has a good long-term track record and has recently been awarded the "Best Places to Work" award for 2019.

This does not seem to be a business that should trade at just 9.3 times its profits. Fortunately, Oshkosh management is taking the opportunity to target $ 350 million of share buybacks this year. Oshkosh has reduced its overall share by about 6% in the last 12 months, and it looks like these huge cash returns will continue. An increased number of share buybacks over the coming quarters and years means a reduction in the number of shares, and therefore greater flexibility to increase the Oshkosh dividend, which represents only 13% of the profit. .

Consumer Discretionary: Starbucks

Dividend yield: 1.48%

Distribution ratio: 50.1%

While you can not think of Starbucks (NASDAQ: SBUX) As a traditional dividend, it has become one over the past two years. As part of a recent simplification initiative, the company sold all of its operations outside of the United States and China. This included selling his company's packaged goods to Nestle, which reported $ 7.1 billion, and non-owner owned stores to master franchisees.

After disposing of these assets, Starbucks has invested money in large stock repurchases and then increased its dividend by 20% in 2017, with a further 20% increase in 2018. Still, I still think that the Starbucks dividend could double over the next decade. recent hikes.

Historically, the company has increased its dividend by November or the postponement date of its fourth quarter of the fiscal year, so that investors must soon proceed to a further increase. And although the company has not experienced the same growth as in the previous decade, management still thinks that it can achieve a "long-term" EPS growth rate of two years. figures.

Even in the absence of an increase in the Starbucks payout ratio, a 10% increase in the annual dividend, in accordance with EPS, would allow this dividend to double in approximately seven years. Although the stock is not particularly cheap today, after a great run in 2019, the company's flagship brand and resilient business still make the stock a solid dividend growth choice.

Tech: Applied Materials

Dividend yield: 1.68%

Distribution ratio: 25.8%

Applied materials (NASDAQ: AMAT) is the leader in semiconductor manufacturing equipment in terms of revenue. The company manufactures engraving and deposition equipment, as well as the control tools needed to manufacture semiconductor chips, from advanced processors to memory chips to advanced displays.

Applied Materials' payout ratio is not only greater than 25%, which means it still has room to grow, but this ratio looks set in a "declining" year for semiconductor equipment, which can be quite cyclical. In fact, Applied Materials' earnings per share last quarter dropped by 40%. This means that the company's current distribution ratio based on more "normalized" profits is probably even lower.

There is also reason to believe that next year will return to growth. On the one hand, the memory sector is already well underway, which, in the opinion of many analysts, is on the brink of becoming positive in 2020. As the demand for memory increases, Equipment purchases from Applied customers also increase.

In addition, everything indicates that 5G versions are accelerating faster than expected, which should require more advanced chips and, therefore, more Applied Materials equipment. Applied also recently announced the acquisition of Kokusai Electric, a Japanese company offering complementary products that, according to Applied management, will immediately increase earnings per share.

With the current low ratio of Applied Materials and the long-term need for more and more sophisticated chips, it seems that the company's dividend is about to go nowhere, but in the years to come.

Financial Statements: JPMorgan Chase

Dividend yield: 3.12%

Ratio of distribution: 32,65%

To be honest, it was difficult to choose a financial firm among the major US banks, as most of them are extremely cheap at the moment and are preparing for dividend growth. Why I chose JPMorgan Chase (NYSE: JPM)? Probably because of the "growth" of the equation.

JPMorgan owns the largest franchise in the United States as the largest bank of financial centers in America, but that does not mean it can not continue to grow. In fact, JPMorgan announced a major expansion of 90 branches in 2019 in nine new US markets, primarily in the Southeast, Midwest and Pennsylvania.

This does not seem to be a business that is afraid of being too big to grow. And yet, JPMorgan's shares are now only 12 times earnings, despite EPS growth of 23% in the last quarter, fueled by a combined 16% rise in net income and large share buybacks.

Banks have generally been liquidated this year due to fears over the recent flattening of the yield curve, which could very well reduce banks' margins in the coming quarters. It could also suggest an economic slowdown.

However, there is no guarantee that a recession will occur and, even if it is, JPMorgan has very high capital ratios compared to 2008, which should serve as a buffer. In fact, JPMorgan did not need to take a government bailout in 2008, but agreed to do so in order to preserve the trust of other banks. made need that.

JPMorgan's security, growth profile and advanced technology investments should all contribute to earnings growth in the future. Combined with stock redemptions at these low prices, it is very likely that further dividend increases will be achieved in the coming years.

Mines and Energy: Cleveland-Cliffs

Dividend yield: 3.17%

Distribution ratio: 5.1%

The largest producer of pure iron ore in the US Cleveland-Cliffs (NYSE: CLF) became a dividend in the fourth quarter of 2018, when he reinstated his dividend after withdrawing it several years ago to prevent a possible bankruptcy.

Obviously, society is in a much better place today. General Manager Lourenco Goncalves, who took office in 2014, sold all Cleveland-Cliff non-ferrous and non-ferrous ore mines acquired by previous management, then repaid the debt and doubled the volume of major US properties. of the society.

This helped consolidate the company's balance sheet and Cleveland now has long-term "take-or-pay" contracts with major US steel producers, which should allow the company to remain profitable in the major part of the cycle and generate manageable losses (or no loss). in case of serious recession.

While Cleveland-Cliffs actually enjoys the tariffs applied to Chinese imports in 2018, which have driven up steel prices in the United States, the ongoing trade war and fears of a slowdown have recently dropped prices. This lowered Cleveland's share price and its return exceeded 3%.

And yet, management has not only increased the quarterly dividend by 20%, from $ 0.05 to $ 0.06 per share, less than a year after reinstating it, but has even added an additional special dividend of $ 0.04 per share, payable to shareholders of record on October 4. (ex-dividend 2 October). Insiders also bought shares during the recent fainting, which certainly shows confidence in the face of falling prices for steel and iron ore.

What is the management so confident? It is likely that the company's new Ohio-built hot briquetting iron plant (HBI) is expected to be completed by the first half of 2020. Once built, Cleveland-Cliffs will be able to produce a manufactured product. more upmarket and high profit margin. recent arc furnace steelmakers. This should help further strengthen the company's margins next year and generate consistent cash flow in the future.

At a recent industry conference, Goncalves said that once the HBI plant is completed and the company reaped the benefits, it would seek to increase the company's dividend, or even create new ones. special dividends, insofar as it does not plan to build more. factories hundreds of millions of dollars after Ohio. Such pro-shareholder actions should be music to investors.