After a volatile few months, interest rates appear to be settling back into a tight trading range, For example, the yield on the 10-year U.S. Treasury has hovered between 2.5% and 2.7% for more than a month now, after a stunning surge in May and early June that shook up the markets.
The relative quiet in the bond market gives investors a chance to pause and further assess their approach to dividend-paying stocks. Our take: It’s not always the size of the dividend yieldthat counts, but the growth in the dividend as well. A stock with a stagnant 5% yield holds less long-term appeal than a 3% yielder that is poised for sustained long-term dividend growth. With that in mind, the current earnings season has given investors a fresh peek into the companies that sport moderate current yields but are capable of much higher yields down the road.
In fact, here’s a quick look at companies that have recently reported quarterly results and appear positioned for sustained dividend growth.
|1. AbbVie Inc (NYSE:ABBV)|
Since January, AbbVie Inc (NYSE:ABBV) has delivered stellar quarterly results, highlighted by a recent fresh boost in profit guidance. Although the companywill likely wait until year’s end before boosting its current $1.60 a share dividend payout, current profit trends point to a 10% to 15% increase, as the company has a stated goal of parting with half of its cash flow in the form of a dividend. That may be why Standard & Poor’s recently added AbbVie Inc (NYSE:ABBV) to its S&P 500 High YieldDividend Aristocrats Index (IND:SPHYDA).
|2. Helmerich & Payne, Inc. (NYSE:HP)|
A decade ago, this provider of energy drilling equipment was content to issue 4% to 5% annual increases in its dividend. The payout got a bit more attention in recent years, as it rose roughly 12% annually in each of the past three fiscal years. Management is really stepping on the gas now, having recently hiked the quarterly dividend more than 200% to 50 cents a share. Commenting on just-released quarterly results, management noted that “we are confident that our strong capital structure allows us to pursue growth opportunities and, at the same time, return meaningful cash to shareholders.” Translation: the current dividend, which now yields 3%, is set to move steadily higher.