Sick Dividends

Searching For Healthy Profits In The Stock Market


2024 Dividend Growth Stocks

By: The Sick Economist 


What a difference a year makes!  After many many years of very low interest rates, 2023 was the year the Fed changed the game. To combat inflation the Federal Reserve raised interest rates at one of the fastest paces on record. 

This change has had momentous implications for yield seeking investors. For many years, dividend stocks where the only show in town (Or TINA, There Is No Alternative, as the pundits used to say). Well, now there are plenty of alternatives for investors who seek quarterly or even monthly income from their investments. 

So, in this new world of higher yields, why should investors bother with dividend stocks at all? One word: growth. 

While it’s now easy to earn 5% on a stable, guaranteed bank CD, 5% is all you will ever get, and that may even drop when you go to roll over your CD. Dividend stocks have the potential to provide a growing stream of income that can double, triple, or even quadruple over the years. 

I said, potential.  Not all companies reliably grow their dividend. And some reliably grow their dividend, but the higher yield just comes in the form of tiny drops, instead of a gusher.  

Below, find three strong candidates for investors who want a growing dividend. We’ll discuss why each stock is a strong candidate for growth, with special attention to the methods that we use to identify these growth characteristics. 

1. Microsoft Corporation

This name may come as no surprise. Its hardly difficult to identify an omnipresent, decades old mega corporation as a very profitable enterprise. But the firm illustrates some of the great paradoxes of dividend growth investing, and those paradoxes might actually cause the inexperienced investor to miss out on the fun. 

The story of Microsoft’s miraculous revival under CEO Satya Nadella is the stuff of legend. The revival has been so powerful, that Steve Balmer, long Bill Gates’ underling may actually wind up richer than his old boss, simply because he held onto the shares long after his old boss sold.  

So, at this point there is nothing surprising about Microsoft’s prodigious ability to mint money. But a lot of dividend investors might be surprised to find the company on this list. After all, right now the company yields less than 1%.  This may seem like a paltry dividend yield to many. 

But it doesn’t feel like a paltry dividend yield to shareholders like Steve Balmer, who acquired the shares many years ago and just held on. In fact, Balmer has officially hit “ludacris speed” in terms of his annual dividend payout.  

So, how you can you be ballin’ like Balmer?  Well, first let’s look at the dividend growth that made him the richest nerd West of the Mississippi. 

Balmer joined the company in the late 80’s, but no one has time for ancient history. So let’s go back to 2003, exactly twenty years ago. At that time, Microsoft was paying an quarterly dividend of just $.08 per share. Today, the same shares pay a dividend of $.75.  That’s right. Over twenty years, Microsoft’s dividend grew by a factor of almost 10, or 1,000%.   

So, why, if the dividend has grown so fast, is today’s dividend yield just 1%?  Because the share price has grown even more. The dividend yield is simply the current yield, divided by the current share price. So, if the share price just keeps relentlessly rocketing higher, your dividend yield will look paltry. In reality, the company pumps out almost TEN TIMES what it did twenty years ago.  That is how Steve Balmer became a nerd who collects sports teams, instead of just sports cards. 

With all that growth, Microsoft’s best days must be behind it, right? Astoundingly, they may just be getting started. Micorosft is intimately involved with the famous (or infamous) Chat GPT.  This means that this old company has privileged access to brand new, cutting edge AI technology. Microsoft is wasting no time weaving this new tech into their pre-existing customer base. This means that, for the foreseeable future, Microsoft will have all kinds of new, very profitable products to offer its more than 1 billion pre-existing customers. 

But that is just the beginning. Microsoft continues to see big success with their cloud computing business (Microsoft Azure) as well as with companies they have acquired (LinkedIN, etc).   

Although today’s investor will only capture a dividend yield of around 1% upon purchase, it seems quite plausible that Miscrosoft could again raise that dividend by 1,000% over the next twenty years. Maybe you missed the gravy train the first time around….don’t miss it again!

2. Deere and Company 

What comes to mind when you think of a “tech firm?”   Electric cars, the Golden Gate Bridge, people who look like they haven’t left their computer basement in months?  

You should be thinking about bright sun, open fields, and tractors. Deere and company is an undercover tech company with some mind boggling growth prospects. 

Feeding the world’s eight billion people is no easy task. The world’s population has more than quadrupled since 1900, and that number is predicted to keep growing at least through 2100.  That’s an awful lot of hungry mouths, in a world of finite resources. The only way to keep the world fed is through technology that grows along with the world’s needs. 

Deere and Company is up to the challenge. Today they are much more than green and yellow machines that country yokals drive in a straight line all day. In fact, around the world, millions and millions of farming machines are already outdated. They are brainless and “dumb” and they run on fossil fuels. Tomorrow’s machines will be more like rolling computers, and they are likely to run on electricity and batteries. That means, slowly but surely, every one of those millions upon millions of machines will have to be upgraded. Farmers with old, outdated machinery won’t be abe to compete. Just like farmers with just oxen and donkeys couldn’t compete with John Deere’s original green machines in the 1960’s.  

So, Deere and compay finds itself in the early innings of what could be called a “super cycle.”  Tomorrow’s farming machinery will fun itself based on artificial intelligence using data fed to software with advanced sensor technology. The savings on labor, chemical and crop waste will be massive. Think about an opportunity to buy Google just after it went public, or Apple right after inventing the Iphone. 

Yeah, it could be that good. 

It’s already been great for shareholders. The company grows its dividend with the same regularity and precision of a master farmer. Since 2008, the company has grown it’s quarterly dividend from $.25 to $1.35, or quintupling in just 15 years. How is that for a bumper crop!  

Deere and Co would easily repeat or even beat that dividend performance all over again. Just last week, they raised their quarterly dividend from $1.35 to $1.47.  Even then, they have a dividend payout ratio of less than 20%, which is considered a rock solid indicator of a great capacity to keep raising dividends in the future.  Even with this prodigious ability to crank out cash flow, the stock is only valued at 14 times annual earnings; many investors prefer flashy software and fancy locations, they readily ignore the profit growing right under their feet. 

Deere&Co is a business that sells automated machines and provides automatic cash flow growth for today’s astute investor.  

3. Amgen 

The two options presented above offer tremendous futures, but many yield oriented investors may find today’s modest dividend tough to swallow. An investor needs a lot of patience to watch a 1% dividend yield grow to 5% over many years. 

Isn’t there anything that offers a decent yield today while also promising solid growth?  

Amgen fits that bill. Today the stock yields approximately 3.2%, which gives hungry investors something to snack on while waiting for that tasty future growth. 

Over the last five years, the company has grown their dividend at an 8% annual rate, handily beating inflation. Today, they payout roughly 47% of their free cash flow, which means they can easily afford their dividend, and investors could expect 8% growth for many years to come. At that rate, the company’s cash payout doubles every 9 years.  

Why would anybody be so confident in Amgen’s growth prospects? After all, the pharmaceutical business is a risky affair, and patents don’t last forever. 

Amgen has a rock solid pipeline, that is about to grow even more robust through acquisition. Currently, the company is a leader in three main areas: oncology, inflatmation, and primary care medicine. 

Those are some great spaces to play in. You may remember, the greatest selling drug of all time, Humira, worked across many indications in the inflammation space. Amgen is fishing in those same waters. Oncology is also excellent because cancer is primarily a disease of old age. With 10,000 Baby Boomers getting a medicare card every day, we are going to see a whole lot of cancer, and most of it will be paid for by Uncle Sam. 

But new shareholders should be most excited about two new businesses for the company. The first is a blossoming portfolio of “biosimilar” drugs. These are essentially generic drugs for biologic therpaies, or therapies manufactured by living bacteria. Up until now, these have been very expensive and hard to make drugs that have been the primary driver of higher costs in the American healthcare system. Amgen now has a division dedicated to providing copies of these drugs at lower prices. As a generic business, this new division will add a steady, recurring stream of income that will help the company predictably churn out cash flow. The profits from biosimilars may be limited, but they will be steady. 

The slow and steady cash flow from the biosimilars division should help balance out the home run, “hit or miss” potential of Amgen’s new rare disease division. This is being formed as we speak through the purchase of Horizon Therapeutics. Rare disease drugs can sell for millions of dollars per dose; however, it is a risky, volatile business. The addition of this potentially lucrative business to the predictable biosimilars business could provide a powerful “1, 2 punch” for cash flow growth. 

If you want growth potential for the future, but you need a better dividend yield today, then Amgen could be good medicine for your dividend portfolio. 

Bonus Selection

I said I would give you three picks but I’m actually throwing in a bonus! If you have a strong stomach for volatility, and you want high yield today, you might consider Pfizer. Pfizer has been gowing through hell lately, because they drastically overestimated the recurring revenue for their covid vaccine. It turns out that Americans have just lost interest in everything covid, including further preventive vaccinations. 

As a result, the company actually lost money last quarter. They have been heavily criticized in the media, and their stock has crashed from $52 all the way down to just $26. This kind of crash is unheard of for a Big Pharma company that is more than one hundred years old. Layoffs and downsizing have been announced. 

Pfizer has every chance to get their mojo back. They just closed a big acquisition in the oncology field that brims with potential. They have a robust new drug pipeline. Just at the moment, Wall Street has given them a time out and sent them to sit in the corner. The shares yield over 6%, and the stock is trading at a P/E of just 14. 

Pfizer has been a force in American business since 1849. It was a winning investment for your grandfather, and will likely be a winning investment for your grandkids.  But no one ever gets rich by buying stocks that are currently in favor and well liked. Sometimes you got to take a risk on a company that has seen better day. This could be one of those times. 


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