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Top 2019 Dividend Growers With Promising Plans for the Future

Dividend growers provide an attractive investment opportunity, especially for long-term investors. The most promising dividend stocks are the ones that have strong but sustainable dividend growth, healthy balance sheets, demonstrated financial strength and consistent increases in net income.

Selected from among companies on the GuruFocus All-in-One screener, a Premium feature, with a financial strength score of at least 6, profitability score of at least 7, dividend increases for the past 10 years and a dividend payout ratio that is at least 0.3 but not higher than 0.7, here are two stocks that promise high dividend payments and business growth in upcoming years.

  • High Yield Dividend Stocks in Gurus' Portfolio
  • NYSE:RTN) is a U.S.-based aerospace and defense company with a dividend yield of 1.9%, which is higher than 61.34% of its industry competitors. Its dividend payout ratio is 0.33, and it has a three-year dividend growth rate of 9%.

From a financial health standpoint, Raytheon is a strong and well-established company with an attractive balance sheet. Its debt is easily serviceable with an interest coverage ratio of 24.66, and it has consistently grown both revenue and net income since 2014. Its gross margin and operating margin have been increasing for the past 10 years and, as of second quarter-end, it has a gross margin of 27.29% and an operating margin of 16.43%.

In terms of future growth, Raytheon plans to merge with United Technologies (UTX) in the first half of 2020 to form Raytheon Technologies. As this deal is beneficial for both companies, analysts believe there is little chance of the deal falling through. United Technologies has been struggling in recent years due to the sharp divide between the profitability of its aerospace operations and the underperformance of its non-aerospace businesses.

The merger will give 43% of the combined company to Raytheon shareholders and 57% to United Technologies shareholders, which reflects the relative valuations of the companies' cash flow net income, as shown in the chart below. In other words, Raytheon shareholders are getting the better end of the deal, which will likely be reflected in stock price increases after the merger closes.


Fastanel Co.

Fastenal Co. (NASDAQ:FAST) is a U.S.-based industrial supplies distribution company with a dividend yield of 2.76%, which is higher than 55.86% of industry competitors. Its dividend payout ratio is 0.62, and it has a three-year dividend growth rate of 11.2%.

Although Fastenal lags behind about one-fourth of its competitors in terms of revenue and net income and has a price-earnings of 23.15, which is well below the industry median, its balance sheet is strong. The company's gross margin and operating margin are in decline, but the decline is only 1.3% per year for the past three years. Its gross margin of 46.86% and operating margin of 20.06% remain higher than all competitors except Lawson Products Inc. (LAWS), which has a higher gross margin but a lower operating margin.

As an industrial distribution company, Fastenal's growth relies on selling more of the same thing than on creating new products. The competition is tough, and Fastenal has been forced to close 386 (approximately 18%) of its store locations since 2013. Despite this setback, the company's revenue and net income continue to increase, as shown in the chart below. This is because it has figured out the perfect way to gain an edge over the competition - it makes itself difficult to get rid of.


Fastenal currently has over 100,000 vending machines deployed on-site at customer locations. Instead of drinks and snacks, these machines sell nuts and bolts, and the convenience of them is more than enough to make up for a measly 18% of its branch locations. Fastenal focuses its marketing efforts on inventory management for its customers and minimizing their wait time for parts through vending machines and on-site offices for many larger customers. The savings they create for their customers by becoming their main supplier that will go to them at any time makes them close to indispensable once they've got a foothold, which is good news for investors.

Disclosure: No positions.

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This article first appeared on GuruFocus.