Dividends are good. Growing dividends are even better. But dividends that double in only a few years? They're great. Or at least some of them are.
There are some stocks with fast-growing dividends that still have puny yields. Others have enjoyed strong dividend growth in the past, but the future appears to be murkier. However, there are a few attractive income stocks whose dividends have doubled in recent years and have the potential to double yet again. Amgen (NASDAQ: AMGN), Lowe's Companies (NYSE: LOW), and Texas Instruments (NASDAQ: TXN) rank high on this list.
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Amgen
Amgen has increased its dividend by nearly 145% over the last five years. Just a few days ago, the big biotech hiked its dividend again, this time boosting its payout by 15%. If Amgen keeps it up at that rate, its dividend will double yet again within the next five years. With a current yield of 2.62%, that kind of growth would have income-seeking investors sitting pretty in the next decade.
But can Amgen keep growing its dividend as it has in the past? I think so. The biotech uses only 40% of earnings and less than a third of its free cash flow to fund the dividend program. That gives Amgen plenty of flexibility for future dividend increases.
There is a problem, however. Amgen's earnings growth is likely to drop considerably from levels in previous years. Sales are slipping for the company's two top-selling drugs, Enbrel and Neulasta, as competitors take away market share. Amgen claims several drugs that are enjoying sales growth, but it's not enough to compensate for the other declines.
Better days could be ahead for Amgen, though. Cholesterol drug Repatha could take off following the recent FDA approval for the drug in preventing heart attacks, strokes, and coronary revascularizations. Migraine drug erenumab, for which Amgen awaits potential regulatory approval in May 2018, should be another winner. Robert Bradway, Amgen's CEO, stated in September that the biotech "is trying to find acquisitions that add value for our shareholders." With a huge cash stockpile of more than $41 billion, funding those acquisitions shouldn't be a problem.
Lowe's Companies
Lowe's dividend has soared by 156% over the last five years. In June, the home improvement retailer increased its dividend by 17%. With the power of compounding, Lowe's dividend will double in less than five years at that growth rate.
Another doubling seems quite possible. The company's payout ratio is a low 36.5%. Lowe's uses only 27% of its free cash flow to pay dividends. It technically could afford to double the dividend now if it wanted to.