Stocks with excellent long-term dividend potential come in all shapes and sizes. For example, there are the more obvious income plays which offer high yields and a long track record of impressive dividend growth figures. And then there are stocks that may not offer a high yield right now, but which have either a low dividend payout ratio or else are forecast to increase their earnings (and, potentially, shareholder payouts) at a rapid rate.
Of course, a balanced portfolio is usually a noble aim for all Foolish investors to have in mind and, as such, pairing up Australia and New Zealand Banking Group (ASX: ANZ) and Ramsay Health Care Limited (ASX: RHC) seems to be a wise move.
In the case of ANZ, it falls into the first category; that of a high-yielding stock with a history of strong dividend growth. For example, it currently yields a fully franked 5.6% and during the last ten years it has increased dividends per share at an annualised rate of 5.5%. As such, it has generally beaten inflation and allowed its investors to see a real-terms rise in their incomes throughout the last decade.
Looking ahead, it is forecast to post a rise in dividends per share of 4.3% per annum during the next two financial years and, with a falling interest rate set to boost its earnings, it could prove to be a sound income play. That's because a looser monetary policy should not only increase demand for loans (since their cost is lower), but could also have a positive impact on the wider economy and, more specifically, on asset prices. This may lead to lower write downs for banks such as ANZ and help to boost its profitability over the medium term, thereby allowing it to become more generous with its dividend payouts.
Meanwhile, private hospital operator, Ramsay, falls into the second category of dividend stocks, with it having a relatively low yield but significant potential to increase dividends at a rapid rate over the medium term. For example, Ramsay currently has a dividend yield of just 1.4% (fully franked) even though it has increased dividends at an annualised rate of 17.4% during the last ten years.
Of course, the reason for this is a rapidly rising share price, with Ramsay's valuation increasing by 658% in the last decade. And, despite such strong dividend growth history, Ramsay still pays out only 49% of its net profit to shareholders in the form of a dividend. This, combined with a forecast growth rate in earnings of almost 20% per annum during the next two years, means that Ramsay should be able to afford a sustained and rapid rise in dividends per share in the medium term.
As such, while the ASX pays out more than three times Ramsay at the present time (the wider index has a yield of 4.5%), Ramsay could become a stunning income stock in the long run.
