24/7 Wall St.

It’s no secret that investors love their dividends. Investors praise companies that can raise their dividends year after year, and a commitment to a strong dividend policy is a company’s representation that it has faith in its earnings power well into the future.

Now that stocks have hit new all-time highs again in 2019, and the S&P 500 was up about 20% year to date, investors need to be closely monitoring their investments. After all, the current bull market is now the longest recovery of our lifetimes, and the media keeps warning that another recession could arrive soon.

What happens as stocks rise is that their dividend yield comes down for newer investors. To combat this, companies try to raise their dividends within their means. That means companies should never pay out more than they make today and not more than they think they will make in the future.

24/7 Wall St. has screened its universe of solid, large-cap dividend stocks for companies with very healthy dividends that have grown over time. What stood out is that there are still many companies that almost certainly will be able to afford dividend hikes ahead even if the economy hits the skids. Another class of dividend-paying stocks is worth examining. That is, the companies that can keep growing their dividend payouts by 10% or more cumulatively for the next five years.

There are some very dangerous high yield dividends out there in telecom, retail and other economically sensitive areas of the economy. Those companies already may have been forced to cut their dividends or are likely to in the future.

For a company to safely raise its dividend for five more years, it has to have tolerable payout ratios of dividends to total earnings. Such companies also have to be able to grow their income ahead, and they must not be under unmanageable debt loads or too much regulatory scrutiny. Many companies already have a history of double-digit dividend growth, but it’s an entirely different issue deciding which companies can keep raising their dividends by 10% or more for the next five years, or even longer.

There are always some risks that even the most stable companies may have to halt their dividend ambitions. They may choose to make an acquisition that eats up the cash, or they may choose to be very aggressive on buying back their own shares or to pay down their long-term debt rapidly. Moreover, if the next recession is far worse than a so-called “garden variety recession,” then it could stoke all sorts of caution and pain all over again.

Many investors expect that half of their total returns over time will come from dividends. Even the great Warren Buffett counts on dividends to juice his returns, even if he won’t pay a dividend to shareholders himself. Here are 10 solid dividends today that should see 10% or higher dividend growth in the next five years.

American Express

American Express Co. (NYSE: AXP) is rather different from Visa and Mastercard because it takes consumer credit risks rather than only acting as a toll-road operator in transactions. What has happened with Amex is that it is now out from under the Federal Reserve’s annual stress tests (2019 CCAR), but it still has to develop and maintain a capital plan and its board has to approve capital allocations. Amex may be under more regulatory reviews in the future if its assets get above the future threshold limits.

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