For a long-term investor, dividends are critically important. Even during periods when the market is flat, receiving dividends and reinvesting them can lead to solid results. The best dividend stocks are those that not only pay a high yield but also have the ability to significantly raise the dividend over time to create an ever-growing stream of income for the investor. Here’s a look at two great dividend-paying companies that should be increasing their dividends before the end of the year.
Moving money, paying dividends
Money transfer giant The Western Union Company (NYSE:WU) has been around since 1851, beginning its long history as a telegraph operator. Spun off from First Data in 2006, The Western Union Company (NYSE:WU) is now a leading player in the money transfer industry with over $5.5 billion in annual revenue.
The Western Union Company (NYSE:WU)’s competitive advantage comes from its scale. The company operates in over 200 counties through more than half a million Western Union agents, collecting fees each time money is moved around the world. The company’s margins are exceptional, generating $0.18 of profit for every dollar of revenue last year.
Since its spin-off, The Western Union Company (NYSE:WU) has substantially increased its dividend in every year except 2008. The last increase, occurring at the end of 2012, was a 25% hike. The dividend yield is now 2.77%, based on the most recent payment.
What makes Western Union so enticing as a dividend stock is the fact that the dividend payment only takes up a small portion of the company’s profits. In 2012, dividend payments were just a quarter of earnings, leaving a long runway for future dividend growth.
Since The Western Union Company (NYSE:WU) last increased its dividend in December of last year, I expect the next dividend increase to be announced sometime in October with a payment following in December. Given the low payout ratio, the company can easily afford to boost the dividend by 20%, which would bring the yield up to about 3.33% based on the current price.
Future growth for The Western Union Company (NYSE:WU) will come from its online business, which is growing at double-digit rates. While it currently doesn’t make up much of the company’s revenue, in a few years, it should be fairly significant. The success of its online business makes competitors like upstart Xoom seem far less threatening, and the idea that Western Union will fade away because of competition if vastly overdone. The dividend is safe, and I expect serious growth in the future.
A murky short-term outlook
Chip maker Intel Corporation (NASDAQ:INTC) has had a rough go of it as of late. While companies like Qualcomm were taking advantage of the booming mobile chip market, Intel Corporation (NASDAQ:INTC) was unable to capitalize on the shift to mobile. The declining PC market and heavy investments are currently pressuring Intel’s profits, making its short-term outlook murky at best.
Intel Corporation (NASDAQ:INTC)’s dividend yield currently sits at about 3.9%, one of the highest in the tech sector. The high yield is partially due to weakness in the stock, off from a high of $28 per share in 2012. Uncertainty regarding PCs as well as slow progress in the mobile market were the main drivers of this decline.