If a stock pays good dividends, it is undoubtedly the first choice among investors who are looking for good returns from the stock market. However, in the current scenario, not all big companies pay dividends that are proportionate to their growth patterns. Most of the big names are quite conservative when it comes to their payouts for a various number of reasons. Situations could change in the future as the cash flow generating capacity of these companies keeps getting better with every passing day. Here is a list of a few companies that have immense potential to increase their dividends in the coming years:
Share repurchases given priority
One investment banking giant that has immense capacity to increase its dividends in the near future is Goldman Sachs (GS, Financial). At present, the company’s dividend per share is a meager $2.40 per year. However this doesn’t mean that the investment major doesn’t focus on improving shareholders’ worth. It does – only through another form, that is, share repurchases. Goldman Sachs has been on a repurchase spree over the last few years and this activity has increased at an average pace of 6% per year. The investment bank was involved in huge share-buybacks during 2013 and 2014, during which it bought back 39.3 million and 31.8 million shares respectively.
Due to this, the number of outstanding shares floating in the stock market has been reduced by a considerable extent today, resulting in continuous increases in earnings per share. However, share repurchases may have to be stalled soon when the number of outstanding shares becomes quite reasonable, and there are not many shares to buy back for the management. Right now, the dividend yield is just about 1.25%, and the pay-put ratio is a paltry 13.9%. Goldman is a company that has potential far higher than these values suggest. Therefore in the near future, when the shift has to turn from share repurchases, Goldman might surprise investors with good returns in the form of dividends. The share price history for the last few months is shown in the following graphs:
Immense cash flow could trigger dividend increases
The other company that has huge potential to increase its dividends in the coming years is the payment processing giant, Visa (V, Financial). Just like Goldman Sachs, Visa, too, is currently concentrating on providing good returns to shareholders through share repurchases. Even during October 2014, Visa announced an impressive share buyback program worth $5 billion; however, with 90% of the shares already taken, there are hardly any open shares left in the market for Visa to indulge in further buybacks. The future does look very promising as more and more people are using cards for payment processing and not the conventional mode of cash.
With billions of cardholders across the globe, Visa’s cash flow looks very healthy as of now. In the past half a decade or so, revenues of Visa have grown by a phenomenal 60%. With lots of cash in hand, Visa will naturally resort to dividend increases in the future so that it can share its profits with investors. Though the present dividend yield of 2.92% and payout ratio of 74.1% look quite reasonable, investors can brace themselves for exciting years ahead as the future looks promising as far as dividend increases are concerned. Historical share price movements for the last year are shown below:
Conclusion
If you are looking for handsome returns every quarter in the form of dividends from your investment, the above stocks are some of the great options available right now. Both of these stocks have large amounts of cash lying in their books that they want to share with their investors. With the option of share repurchases not feasible after some time, these stocks will have to resort to dividend increases in order to pay their investors regularly.
