[Editor’s note: This story was originally published December 2017. It has since been updated and republished with current dividend yields.]
Dividend growth stocks have obvious appeal. After all, dividend investing is based on buying and holding a stock for the payouts. So if a company can consistently increase its distributions to investors over time, all the better.
Unlike traditional growth investing, where you depend on a stock increasing in value based on profits or sales trends, dividend investing focuses on the payouts above all else. The best dividend stocks to buy offer regular deposits into your bank account, but the best dividend stocks are committed to making those paychecks larger every year.
Think of it this way: If you pay $40 a share and get a $1 annual dividend, you have a 2.5% yield on your investment. But if that payout increases to $1.40 annually after a few years your yield is now 3.5% based on your cost to buy the stock … and if the income growth continues to $1.80 annually, you’re now making 4.5% yield. And all by keeping your money in the same place and depending on bigger payouts!
That’s the power of dividend growth investing in 2018. Not only are you getting a stable return on your initial investment, but your payouts continue to increase over time.
So what are some of the most impressive income-growing plays on Wall Street as we enter 2018? Here are 10 to consider:
Source: Mike Mozart via Flickr
Dividend Growth Stocks: CVS
- Current Yield: 2.7%
- 10-Year Dividend Growth: 733%
If you think CVS Health Corp (NYSE:CVS) is just a drug store filling prescriptions and selling candy bars, you don’t understand the business fully. Beyond its 9,700 retail locations in the U.S., it operates 1,100 walk-in healthcare clinics and runs a massive pharmacy benefits business serving more than 1 million patients per year, as well as offering a lucrative Medicare Part D prescription drug plan.
In fact, its pharmacy benefit management solutions segment accounts for almost 60% of total revenues. And the company is looking to move away from traditional retail pharmacies even more with a rumored buyout plan for diversified healthcare benefits company Aetna Inc. (NYSE:AET).
Like many healthcare-related dividend stocks, CVS also should benefit from an aging population in the U.S. And the healthcare business is relatively immune from fluctuations in the economic cycle, which provides a solid foundation for reliable dividend growth. That shows up in its impressive dividend history.
Dividend Growth Stocks: Cisco
- Current Yield: 2.8%
- 10-Year Dividend Growth: 380%
In truth, Cisco Systems, Inc. (NASDAQ:CSCO) actually has 10-year dividend growth that is infinite because it didn’t pay out out a penny in dividends before 2011.
But after that initial payday of 6 cents a quarter, CSCO has rapidly ramped up its dividend growth to now pay 29 cents a share after a nearly 12% bump in payouts in early 2017.
When investors look for reliable dividend stocks, often they overlook the tech sector. But that’s a big mistake, as evidenced by Cisco. Not only does the IT giant currently yield a nice amount at present, but it has steadily increased payouts and is clearly committed to that trend.
And with that payout less than half its profits, CSCO stock has plenty of room to grow its dividend even more in the years ahead.
Dividend Growth Stocks: Home Depot
- Current Yield: 2.4%
- 10-Year Dividend Growth: 295%
Home Depot Inc (NYSE:HD) may not have a particularly noteworthy yield at present, with its payouts just short of that found via 10-year Treasury bonds. But as the largest home improvement retailer in the U.S. and almost four decades of dominance in the industry, HD has been able to deliver powerful dividend growth to investors over time.
And with a strong brand, convenient store locations, a unique in-store shopping experience, growing digital operations and an expanding home improvement market, HD appears to be well-positioned for continued growth.
Home Depot has paid dividends for the past 29 years, raising its payout by an impressive 25% annual pace over the past five. Management last hiked the dividend by 29% earlier this year, and investors can expect strong growth going forward thanks to Home Depot’s safe payout ratio below 50% and outlook for continued earnings growth.
Dividend Growth Stocks: Texas Instruments
- Current Yield: 3.2%
- 10-Year Dividend Growth: 161%
Texas Instruments Incorporated (NASDAQ:TXN) is a global semiconductor company that develops analog integrated circuits and embedded processors. Instead of chasing down fancy branded chips with exclusive uses, TXN made its name on the simpler analog chips that serve as the backbone for even the most basic of gadgets.
Of course, Texas Instruments may have sacrificed some margins there. But what it got in exchange was a reliable business and relationships with electronics designers and manufacturers worldwide.
It owns and operates semiconductor manufacturing facilities (wafer fabrication and assembly/test facilities) in North America, Asia, Japan and Europe. TXN also caters to many diversified markets like industrial (33% of total revenue), personal electronics (26%), automotive (18%) and communications (13%).
That adds up to a reliable revenue stream, allowing TXN to pay uninterrupted dividends since 1962. Dividend growth has been consistent, too, most recently with a 32% one-time hike doled out in late 2016 to mark the 13th consecutive year of larger dividends.
Dividend Growth Stocks: Starbucks
- Current Yield: 2.2%
- 10-Year Dividend Growth: 500%
In truth, Starbucks Corporation (NASDAQ:SBUX) didn’t offer regular distributions before 2010. But in that short time, it has ramped up payments from 5 cents to 25 cents in a serious effort to share its profits more directly with shareholders.
With more than four decades of experience selling coffee, Starbucks has become a leading, premium brand name in the industry. That gives it a dominance that results in reliable revenue — and reliable paydays for investors as a result.
The company sells coffee primarily under its flagship Starbucks Coffee brand as well as Teavana, Tazo, Seattle’s Best Coffee, Evolution Fresh, La Boulange and Ethos brands. Starbucks is well-known for its prompt customer service and quality products.
SBUX last boosted its payout by 25% in late 2016, and with earnings per share expected to grow by double-digits annually and the company’s payout ratio below 50%, SBUX’s dividend should continue its impressive growth over the coming years.
Dividend Growth Stocks: Procter & Gamble
- Current Yield: 3.1%
- 10-Year Dividend Growth: 97%
No dividend list would be complete without consumer products king Procter & Gamble Co (NYSE:PG). P&G stock yields more than 3% at present, and has increased its payouts for a simply amazing 60 consecutive years. Furthermore, it has roughly doubled its payouts over the past 10 years.
That’s saying something, considering the Great Recession of 2008 and 2009 caused many previously strong companies to reduce or altogether eliminate their payouts.
But P&G is as stable a corporation as they come, with a wide product portfolio that includes Pampers diapers, Tide laundry detergent, Charmin toilet paper and a host of other big brands that are staples of consumer cupboards.
With a strong history of payouts and current dividends at just two-thirds of earnings, that growth has a good chance of continuing as the company prospers.
Dividend Growth Stocks: Lowe’s
- Current Yield: 2.2%
- 10-Year Dividend Growth: 412%
Retail is a rough business these days, but as Home Depot showed already there is a safe haven for merchants in the home improvement space. And just like HD stock, Lowe’s Companies, Inc. (NYSE:LOW) is committed to sharing its success with stock holders via bigger dividends over time.
How committed? Well, back in 2007 it was paying 8 cents per quarter… and now, after a 17% hike to payouts in 2017, it’s paying 41 cents.
And with more than 50 consecutive years of increases, you can be sure that payout will rise even more in 2018 and beyond. As with HD the headline yield isn’t great, but the consistency is definitely worth paying attention to.
Dividend Growth Stocks: Hormel
- Current Yield: 1.9%
- 10-Year Dividend Growth: 267%
Meats mega brand Hormel Foods Corp (NYSE:HRL) is as stable a stock as they come. Its consumer-staples focus provides a steady revenue stream, and more than 50 straight years of dividend increases show its income power is reliable, too.
But don’t think this is one of those stocks increasing payouts modestly; adjusted for two 2-for-1 splits, payouts have increased almost 270% in the past decade!
Hormel continues to grow and dominate the processed-meat space, as evidenced by its 2015 acquisition of organic foods giant Applegate and its more recent buyout bid for food-service company Fontanini Italian Meats & Sausages.
That will ensure continued success — and dividends — for years to come.
Dividend Growth Stocks: American States Water
- Current Yield: 1.6%
- 10-Year Dividend Growth: 104%
When investors think about reliable and stable businesses, utilities are often the go-to choice. However, while there are plenty of strong energy utilities out there worth buying, it’s easy to overlook the strength of a company like American States Water Co (NYSE:AWR) that deals in water and sewer infrastructure.
As water issues increasingly become a concern amid drought and shortages in the American West, you can be sure AWR is going to be even more important in the years ahead.
And considering it has increased dividends annually for 62 years — the longest streak of any publicly traded company — you can be sure it will share its success with shareholders via growing payouts at the same time.
While the current yield isn’t grand, you may not find a more reliable source of dividend growth and consistent paydays than this low-risk water utility.
Dividend Growth Stocks: Visa
- Current Yield: 0.7%
- 10-Year Dividend Growth: 625%
Visa Inc (NYSE:V) is a global payments technology company providing electronic payment services, making it at the center of the “cashless economy” trend that is pervading not just develop markets but also fast-growing regions in Asia and South America. With about 50% share of the global market (outside of China, which has prohibitions on some banking and payments competition), Visa is your best bet to play this megatrend.
As commerce continues rapidly moving away from cash and towards digital payments, Visa is well-positioned to leverage strong growth from this trend. A strong brand name, extensive payment network and reliable technology should help Visa maintain its market position as the industry grows.
Speaking of growth, Visa’s dividend growth has been outstanding. The company’s payout has increased by nearly 25% per year over the past five calendar years, including a 21% hike late last year.
With a payout ratio below 40% and earnings growth expected to remain strong, Visa investors can likely expect strong double-digit dividend growth to continue over the coming years.
As of this writing, Jeff Reeves did not own a position in any of the aforementioned securities.
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