High-yield dividend stocks generate more excitement than low-yield stocks, but dividend growth stocks may be better for investors who buy and hold forever. That’s because many high yields are unsustainable. And the rest of the well-funded groups can often only raise their dividends marginally, enough to sustain a streak of annual dividend increases.
With this in mind, let’s focus on four fast-growing dividends that may offer longer-term passive income potential than high-yielding dividends. Since 2018, annual dividend growth has been between 25% and 46%, ASML (ASML -2.41%), Old Dominion Freight Line (ODFL 4.55%), tractor supply company (TSCO -0.46%)When Zoetis (ZTS -1.82%) It may make sense for investors looking to maximize their future passive income.
1.ASML
ASML’s lithography technology—the technology that uses light to create patterns on the silicon wafers used in semiconductor chips—is undeniably complex, but its investment theme is much simpler. Do you think the need for semiconductor chips will increase in the coming decades?
If you answered yes, ASML’s dominant leadership position in a niche market could be a classic buy-and-hold investment forever. Maintaining a monopoly in leading-edge extreme ultraviolet (EUV) lithography systems and holding approximately 80% share of the more mature deep ultraviolet (DUV) market, ASML is of paramount importance to the semiconductor industry.
Thanks to this dominant position, the company has maintained an average free cash flow (FCF) margin of 26% over the past decade. With this incredible cash generation, ASML is well rewarding its shareholders. This is evidenced by the yearly dividend jumping to his 1,600% from the first payout in 2008.
In fact, using the last 12 months, ASML could triple its 0.8% dividend and still maintain excess free cash flow. Going forward, ASML plans to make quarterly dividend payments, as opposed to the semi-annual payments of the past few years. This is good news for his dividend reinvestment plan, as he will receive his ASML shares at various prices throughout the year through quarterly payments.
As countries consider technology independence, the company’s lithography systems should continue to see healthy demand. Trading at 27x FCF, ASML offers incredible dividend growth potential at a reasonable price.
2. Old Dominion Freight Line
Specializing in Less than Truckload (LTL) hauling, with a total return of over 1,200% over the last decade, Old Dominion Freight Line has disrupted the market.
As the name suggests, LTL hauling consists of receiving partial shipments from multiple locations and delivering them to one or more unloading locations. Much more complicated than traditional trucking, but this complexity works like the moat in Old Dominion. A successful new entrant to the industry with nearly 11,000 tractors, 43,000 trailers, 24,000 employees, 255 service centers, and the linehaul dispatcher and software needed to coordinate everything Very little to do.
Equally important to investors, Old Dominion’s business is best in class. Consider profit margins and return on invested capital (ROIC) (a measure of a company’s profitability from debt and equity) relative to his LTL peers.
ODFL profit margin data by YCharts.
Thanks to this extraordinary profitability, Old Dominion decided to start paying dividends in 2017 and has grown it 284% in the years since. The company’s 0.4% dividend yield may seem small, but it’s only 9% of net income.
Additionally, Old Dominion’s price-to-earnings ratio (P/E) of 27 is well below the 40 levels commonly seen in 2022. Old Dominion looks more attractive than ever.
3. Tractor supplier
With 27 million members in the Neighbors Club rewards program, Tractor Supply and its 2,100 stores: home depot When LowesSince 2010, Tractor Supply has increased its quarterly dividend from $0.035 to $0.92 per share, an increase of more than 2,200%. The company, partially supported by these dividends, has outperformed the market over the past five years.
So how does Tractor Supply do it with giants like Home Depot and Lowe’s in your backyard? Consider that almost half of the company’s sales come from the livestock and pets category. Through this niche offering, Tractor Supply attracts millions of farmers, ranchers and even suburban gardeners to its adjacent but highly distinctive product offerings and hometown feel. increase.
Once in a company’s ecosystem, these customers often sign up for rewards programs and become loyal members. For example, since the pandemic began, Tractor Supply has gained 19 million new customers, 55% of whom have become repeat buyers.
The stock trades at just 23 times earnings, and the company’s 1.8% dividend uses only 35% of its total net income. Tractor Supply, whose last dividend he raised by 77%, can remain an attractive dividend growth pick forever.
4. Zoetis
In a recent survey by the Human Animal Bond Institute and Zoetis, 86% of pet owners and veterinarians said they would pay for whatever they needed for comprehensive veterinary care. While it is sad to think of the negative impact on our beloved pets, the fact remains that the importance of Zoetis and its line of pet and livestock vaccines and medicines will continue to grow.
In fact, since going public as a spin-off, Pfizer In 2013, Zoetis posted a total return of nearly 500%. Over the last five years, the company’s revenue has nearly tripled. S&P500 Index Despite being down 19% year-on-year.
In the $45 billion animal health industry, Zoetis generates 61% of its revenue from companion animals (cats and dogs) and 39% from livestock. A leader in pets, cattle and pigs (not to mention geographically North America, Latin America and Asia), the company maintains a portfolio of over 300 products.
Building on this success, Zoetis has grown revenue and EPS by 9% and 13%, respectively, over the past three years. During this time, the company has increased its dividend by 25% each year, and now has a yield of 0.9% and a low payout ratio of 26%. With megatrends working in its favor and steady growth, Zoetis earns 37 times more than he does, but is an outstanding dividend growth stock.
