With so much volatility in the stock market recently — namely, the market’s big pullback as evidenced by the S&P 500‘s nearly 8% decline between Oct. 1 and Dec. 5 — many investors may have an increased appetite for dividend stocks.
Not only are dividend-paying companies typically more profitable and stable compared to their non-dividend-paying counterparts, but they also offer investors a way to make money even when stocks are declining. Making them even more attractive, quality dividend stocks often have dividends that increase every year.
As part of Starbucks’ reinvigorated plan to “improve the return profile” of its business, the coffee giant increased its quarterly dividend one quarter early this year, hiking the payout from $0.30 to $0.36. Since the increase came early, this was the company’s second 20% dividend increase in less than a year.
Paying a $0.36 quarterly dividend, Starbucks has a dividend yield of about 2.2%. While this may not seem robust on the surface, investors should also give weight to the dividend’s strong growth potential. With a payout ratio (the percentage of earnings Starbucks is currently paying out in dividends) of only 38%, there’s still plenty of room for dividend increases down the road. Further, the company is seeing significant momentum, with strong 17% year-over-year growth in non-GAAP earnings per share in fiscal 2018. Considering both Starbucks’ low payout ratio and the company’s recent bottom-line strength, strong dividend growth in the coming years is likely.
For investors looking for both a more robust dividend yield and strong dividend growth prospects, look no further than JPMorgan. JPMorgan increased its dividend by a whopping 43% this year. This puts the company’s dividend yield at an impressive 2.9%.
While JPMorgan’s dividend increases are difficult to predict since bank dividend increases need to be approved by federal regulators, the company’s recent increases show that management is clearly prioritizing dividend growth. JPMorgan’s quarterly dividend payout has increased at an average rate of 16% annually over the past five years.
JPMorgan’s strong business certainly looks like it can support more dividend growth. In the company’s third quarter, JPMorgan boasted a return on equity of 14% and saw earnings per share rise 33% year over year. In addition, JPMorgan has a low payout ratio of just 29%, highlighting lots of wiggle room for its dividend.
Both of these dividend stocks offer investors a good mix of meaningful dividend yields and dividend growth potential. More importantly, both of these stocks’ underlying businesses have been performing very well recently.