Historical references show that stocks boasting a combination of high yield and robust dividend growth can outperform the overall market as well as their low yield and low dividend growth peers. These stocks generally reflect healthy earnings growth or cash flow generation that can support high yields and increasing dividend streams; discover another potential market-beating strategy here.
Below is a closer look at five dividend equities with dividend yields above 4% and historical five-year dividend growth rates above 10%. All featured equities have solid outlooks for continued earnings expansion and dividend growth. They come from diverse industries and offer income streams with a potential to beat inflation.
British American Tobacco
British American Tobacco PLC (ADR) (NYSEMKT:BTI), the world’s second-biggest cigarette maker with a 13% share in the global cigarettes market, selling its brands such as Pall Mall, Dunhill, Kent, and Lucky Strike in 180 markets globally, boasts one of the best growth stories in the tobacco industry. Its good growth prospects come from the cigarette maker’s exposure to emerging markets—attributing some 70% of earnings—where cigarette consumption is growing, as opposed to declining in the mainly industrialized nations of the West.
British American Tobacco PLC (ADR) (NYSEMKT:BTI) is also the only major company in the international tobacco group with a large exposure to tobacco leaf growing. As it is generally the case with tobacco companies, BTI is heavily susceptible to regulatory risk and litigation. However, given the addictive nature of tobacco products, this consumer staples equity can be considered defensive due to a price inelastic demand for tobacco products and demand’s low susceptibility to economic cyclicality, which shields its earnings and dividends.
Despite a somewhat lower volume of cigarettes sold in the first quarter, the company has proven its capacity to increase revenues through higher prices. With strong premium branding, wide geographical exposure, and intact pricing power, British American Tobacco PLC (ADR) (NYSEMKT:BTI) can be expected to continue benefiting from emerging-market growth. In addition, its innovation push into smokeless products, e-cigarettes and other similar products should help boost both its top and bottom lines in the rapidly growing market for cigarette substitutes. British American Tobacco PLC (ADR) (NYSEMKT:BTI) has a forward dividend yield of 4.3%, based on a forecast 10.9% dividend increase in fiscal year 2013.
Brookfield Infrastructure Partners
Brookfield Infrastructure Partners L.P. (NYSE:BIP) owns and operates premier utilities (38% of capital), transport (35%), energy (17%), and timber (10%) assets in the Australasia (35% of capital), North America (25%), South America (25%), and Europe (15%). This LP with an investment-grade rating offers exposure to geographically diversified infrastructure assets from several industries. Its cash flows are 46% regulated and 38% contractual, which provides stability to distribution payouts. The company pays a yield of 4.7% on a payout ratio of 59% of FFO. However, given that its target ratio is 60% to 70% of FFO, future distribution growth is already in the cards. Its five-year historical distribution CAGR is 10%, while, at present, forward distribution increases are projected to between 3% and 7% per year.
This LP is well positioned for cyclical growth and inflationary periods, as it has the ability to capture inflationary price increases, which bodes well for its organic growth. More than 65% of Brookfield Infrastructure Partners L.P. (NYSE:BIP)’s revenues are indexed to inflation or positioned to capture inflationary price increases. Looking specifically at its business segments, port and natural gas transmission lines stand to benefit from accelerating economic growth, toll road business will see growth from GDP expansion and increased emerging market vehicle ownership and use, and timber business will see price increases amid favorable supply and demand dynamics as well as higher harvests amidst the housing market rebound. On top of this, Brookfield Infrastructure Partners L.P. (NYSE:BIP) has some $5 billion in potential organic growth projects.