Want a good dividend stock to own? Don't focus just on the yield itself. When it comes to long-term dividend income, it's important to consider businesses that are growing and that have the potential to increase their payouts, allowing your dividend income to rise over the years.
Three companies that have been generously increasing their dividend payments over the past five years include Amgen (NASDAQ: AMGN), Microsoft (NASDAQ: MSFT), and Mondelez International (NASDAQ: MDLZ). Here's why they could be ideal stocks for investors to buy and hold.
Drugmaker Amgen pays a dividend that yields 3.7% right now. Not only is that well above the S&P 500 average of 1.5%, but the company has also been a dependable dividend growth stock to own. Today, it pays a quarterly dividend of $2.13, which is 61% higher than what it was paying just five years earlier ($1.32).
Amgen has a highly profitable business that has enabled it to raise its dividend over the years. In 2022, it reported just under $6.6 billion in profit on revenue of $26.3 billion, for a strong profit margin of approximately 25%. And Amgen is getting bigger; last year, it acquired pharmaceutical company ChemoCentryx for $3.7 billion, giving it access to Tavneos (avacopan), a potential blockbuster drug that treats anti-neutrophil cytoplasmic autoantibody (ANCA)-associated vasculitis -- an inflammation of the blood vessels.
Most recently, Amgen has announced plans to acquire Horizon Therapeutics, which owns thyroid eye medication Tepezza, another drug that could generate billions at its peak. The deal is still up in the air as the Federal Trade Commission (FTC) is contesting the acquisition on the grounds that it would hurt competition (which Amgen disputes).
Tech giant Microsoft doesn't offer a high yield today, but that could change over time. At 0.8%, this isn't the type of stock that many dividend investors are going to covet. But with deep pockets and profits, it could make for an underrated income stock to hold for the years ahead. It currently pays a quarterly dividend of $0.68. That's a 62% increase from the $0.42 that it was paying its shareholders five years earlier.
More rate hikes are likely coming, with the company on the cusp of some exciting growth opportunities in artificial intelligence and gaming. Its pending deal to acquire Activision Blizzard, the company behind the Call of Duty franchise, looks like it might be able to get over the finish line after a judge in California denied the FTC's request for an injunction.
And with a modest payout ratio of only 28%, Microsoft doesn't even need huge growth opportunities to be able to keep raising its dividend; it only needs to keep doing what it's doing. Sales last quarter, for the period ended June 30, were up 8%, with revenue topping $56.2 billion and profits of $20.1 billion jumping by an even higher rate of 20%.
3. Mondelez International
Snack giant Mondelez International enjoys a resilient business as its modestly priced products can be affordable even as people are scaling back on spending. The company has some of the most popular food and confectionery brands in its portfolio, including Ritz, Oreo, and Cadbury.
Mondelez has generated strong growth this year, with revenue for the latest quarter totaling $8.5 billion and rising an impressive 17% year over year. Meanwhile, net earnings of $941 million were up by 26%.
The company recently announced a generous 10% dividend increase, now paying $0.425, up from a previous rate of $0.385. That's also 63% higher than the $0.26 it was paying in late 2018. With the boost to its dividend, the stock now yields 2.3%. And with its payout ratio at just around 51%, there's ample room for Mondelez to make more dividend hikes in the future.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Activision Blizzard and Microsoft. The Motley Fool recommends Amgen. The Motley Fool has a disclosure policy.