Usually, dividend growth investments are found in sectors that are slow-growing and stable. Whilst there is certainly great dividend payers in those sectors, I want to be diversified across all sectors. Equally important for me, is to balance my portfolio between high yield/low growth and low yield/high growth companies. In that way my dividend income is high enough to cover my expenses, but also has high growth potential.
The company that fits the criteria for a low yield/high growth dividend stock, is an automotive supplier – Lear Corporation. What is driving growth, is the auto trends towards electrification, autonomous driving, connectivity with other devices and configurability to suit each individual customer. Customers also like more personalised and comfortable seating, with built in features.
Lear currently pays a 2.2% dividend yield, but has raised it at a yearly CAGR pace of 25% over the last 8 years. That is extremely impressive growth. The future dividend growth will be powered by the automotive trends mentioned earlier. Lear is strongly positioned and can leverage its existing working relationships with auto manufacturers to implement those changes and profit from it.
What helps this company to return increasing amounts of cash to shareholders, is the extremely strong cash flow generation. Cash flow is the most important figure to keep an eye on as a dividend investor.
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