Two Great Dividend Payers With Dividend Growth Above 15%

It is not easy sorting through all of the stocks out there that pay a decent dividend, but might have other problems. Some of them may have a reasonable dividend, but the growth rate of their payments is low or negative. That is why I like to narrow down the field based on a few metrics: low debt, a relatively high dividend yield, and a very strong five year dividend growth rate of above 15%.

Owens and Minor Inc. (OMI)

Owens & Minor, Inc., together with its subsidiaries, provides distribution, third-party logistics, and other supply-chain management services to healthcare providers and suppliers of medical and surgical products, as well as distributes medical and surgical supplies to the acute-care market. Its services include logistics, supplier management, analytics inventory management, outsourced resource management, clinical supply management, and business process consulting.

Unlike many companies with a high five year dividend growth rate, OMI has maintained this growth rate through last year; its one year dividend growth is 15.4%. OMI also have a relatively low payout ratio, which means there is money left over for reinvestment in the company or to continue raising dividends further. Also, the debt to equity of this company is a very safe 23.5%. I always like to look at total return scenarios for companies such as OMI by plugging in some numbers into my calculator called Total Returns- Dividends vs. Price Appreciation.

The outputs in the middle show the annual total returns for a given annual dividend growth rate and change in stock price. I like to be conservative with my assumptions when projecting my own dividends. Using and 8% growth rate over the next ten years (half of the dividend growth rate today), OMI would still return nearly 4% per year even if the stock price doesn’t budge.

Automatic Data Processing (ADP)

Automatic Data Processing, Inc. provides business outsourcing solutions. The company operates in three segments: Employer Services, Professional Employer Organization (PEO) Services, and Dealer Services. The Employer Services segment offers a range of human resource (HR) information, payroll processing, time and labor management, and tax and benefits administration solutions and services, including traditional and Web-based outsourcing solutions to employers in the United States, Canada, Europe, South America, Australia, and Asia. Its solutions assist employers in the staffing, management, payment, and retention of their employees.

ADP has been a solid dividend payer over the past five years. However, the slowing economy has clearly caught up with this company as its one year dividend growth rate has slipped to 5.2%. But in its favor, this company has a relatively low payout ratio of 56% and no debt at all. Let’s look at some total return scenarios for ADP:

Notice that because of the higher starting dividend yield, ADP’s total returns can equal or even exceed that of OMI even with a lower dividend growth rate.

It’s important to understand how the dividend yield and growth rate interact to produce compounded returns over time. Running scenarios such as the ones I’ve shown above give users a feel for what they can expect over longer holding periods. It also shows the power of solid dividend paying stocks over time and why most people should have them in their portfolio.

Abouth the author: Doug Carey is the owner of WealthTrace. WealthTrace provides retirement planning software and free financial planning calculators and tools for both individuals and financial advisors.