Dividends can be a wonderful way of building wealth. With the help of the dividend payment, it is relatively easy to build up a regular income, which in the best case also increases by a few percent every year. Or you can use the distributions to buy even more shares.
There were some nasty surprises this year. Even large dividend payers from the DAX had to cut the payout this year, or in some cases even cancel it altogether.
But there are also individual cases that have paid a higher dividend this year and whose business figures indicate that a further increase in payments can be expected in the next year.
SAP shines with increasing profits
SAP (WKN: 716460) is such a company. The dividend has been continuously raised for years. The last payment was EUR 1.58 per share. At the current share price of EUR 134.38 (as of July 31, 2020), this brings a return of 1.2%.
This means that more than 50% of the earnings per share of EUR 2.78 have already been distributed. Nevertheless, there are good reasons for a further dividend increase: SAP was able to massively increase profits in the first half of the year. Earnings per share rose from EUR 0.38 in the previous year to EUR 1.42 in this period. Therefore, it can be expected that the result for the year as a whole will be significantly higher than the previous year. That leaves a lot of scope for a dividend increase.
Only slight growth is forecast for the year as a whole, but since extraordinary effects have had a negative impact on earnings last year, the payout ratio should drop significantly. SAP has proven over the years that slow but steady growth can lead to excellent results.
Between 2015 and 2019, sales increased from EUR 20.8 billion to EUR 27.5 billion. The profit experienced a significant dampening in the last financial year and fell from EUR 4.1 billion in the 2018 financial year to EUR 3.3 billion, but that should only be a temporary phenomenon.
At the same time, the dividend was raised from EUR 1.15 in 2015 to the EUR 1.58 already mentioned.
Coca-Cola – dividends have been rising for 58 years
An even better dividend history can be found at Coca Cola (WKN: 850663) share. If you bet on rising dividends, you cannot avoid this share. For 58 years now, the payout has been increasing year after year. Currently, $ 1.64 is paid per share. At the current price of $ 47.69 (as of July 31, 2020), the dividend yield is 3.4%. There are only a few companies worldwide with a better dividend history.
This extraordinary performance is due to the extremely stable business model. In addition to the well-known soft drinks, there are hundreds of other drinks in the range and the group is active in practically every country in the world. This has the advantage that there is no excessive dependency on individual markets or regions. For example, if sales slump in Europe, performance can still be offset by the rest of the world.
Therefore, the company grows by a few percent each year and usually increases profits to the same extent. Performance has slumped somewhat in recent years. The restructuring of the bottling plants has tied up a lot of time and capital.
The steady growth of the company will undoubtedly lead in the future to the fact that dividends and share prices will continue to rise slowly over the coming decades. Since going public 101 years ago, an investment of just $ 19 would have made a fortune by simply reinvesting the dividends.
The post Rising dividend ahead: 2 stocks with potential appeared first on The Motley Fool Germany.
Dennis Zeipert owns Coca-Cola shares. The Motley Fool does not own any of the stocks mentioned.
Motley Fool Deutschland 2020