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10 Dividend Stocks With Growth Potential

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·12 min read
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  • ^GSPC
  • ORCL
  • PPG
  • DOX
  • EMR
  • BWXT
  • PEP
  • CVX
  • TGT

In this article, we will be taking a look at 10 dividend stocks with the potential to grow. To skip our detailed analysis of dividend investing, you can go directly to see the 5 Dividend Stocks With Growth Potential.

Word on Wall Street will always lead one to be wary of growth stocks in times of inflation. As inflation levels have been on the rise in 2021, it would be unsurprising if that truly was the case. However, a recent Wall Street Journal article has pointed out that in another surprising turn, investors have continued piling into growth stocks despite the rising inflation.

Like other big names, such as Pepsico, Inc. (NASDAQ:PEP), Target Corporation (NYSE:TGT), and Chevron Corporation (NYSE:CVX), growth and tech stocks have thus been on the rise in terms of investor popularity so far this year. Names such as Apple Inc. (NASDAQ:AAPL), NVIDIA Corporation (NASDAQ:NVDA), and Advanced Micro Devices, Inc. (NASDAQ:AMD) were among the list of growth stocks most investors piled into this November, according to VandaTrack, a Vanda Research flow tracker cited by the Wall Street Journal.

Apart from merely focusing on growth stocks, one also has the option of joining their growth investing strategy with a dividend investing one. The unreliable and volatile economic situation influenced by the COVID-19 pandemic has made it clearer that when looking at dividend stocks too, it helps to focus on companies with histories of dividend growth. These companies, according to an S&P Dow Jones Indices report, have sustainable and growing dividends and thus offer investors the opportunity to pile into higher-quality stocks. This leads to, naturally, greater income, buffering against market volatility, and countering the risk of rising interest rates.

The report shows that the dividend growth stocks studied in this research between 1999 to 2021, primarily from the S&P High Yield Dividend Aristocrats index, outperformed the S&P Composite 1500 and the S&P 500 High Dividend Index. This outperformance was valued at 143 bps per month and 59 bps per month, respectively. In the same vein, the report highlights how during the 15 worst-performing months of the S&P Composite 1500, the S&P High Yield Dividend Aristocrats offered significant protection with its monthly outperformance of 229 bps and 358 bps as opposed to the S&P Composite 1500 and the S&P 500 High Dividend Index, respectively.

10 Dividend Stocks With the Potential to Grow
10 Dividend Stocks With the Potential to Grow

Photo by Annie Spratt on Unsplash

Our Methodology

We picked the stocks that have been paying and growing their dividends consistently and also have long-term growth potential in terms of share price appreciation due to their strong business models.

These stocks are also popular among the 867 hedge funds in Insider Monkey's database as of the third quarter. We have mentioned dividend yields and number of years of dividend growth with each stock.

Dividend Stocks With the Potential to Grow

10. Oracle Corporation (NASDAQ:ORCL)

Number of Hedge Fund Holders: 56

Dividend Yield: 1.4%

Number of Years of Dividend Growth: 8

Oracle Corporation (NASDAQ:ORCL) is an American multinational computer software company. It is based in Texas and is among the best dividend stocks with the potential to grow. This is evidenced by Credit Suisse analyst Phil Winslow's comments from this November that the company is well positioned to become the top third or fourth vendor in the PaaS/IaaS market, and the second best vendor in the SaaS market.

Analyst Winslow also initiated coverage of Oracle Corporation (NASDAQ:ORCL) this November. The analyst holds an Outperform rating on the stock, alongside a $110 price target.

In the fiscal first quarter of 2021, Oracle Corporation (NASDAQ:ORCL) had an EPS of $1.03, beating estimates by $0.06. The company's revenue was $9.73 billion, up 3.84% year over year. Oracle Corporation (NASDAQ:ORCL) has gained 18.07% in the past six months and 46.79% year to date.

By the end of the third quarter of 2021, 56 hedge funds out of the 867 tracked by Insider Monkey held stakes in Oracle Corporation (NASDAQ:ORCL) worth roughly $3.5 billion. This is compared to 55 hedge funds in the previous quarter with a total stake value of approximately $2.9 billion.

Like Pepsico, Inc. (NASDAQ:PEP), Target Corporation (NYSE:TGT), and Chevron Corporation (NYSE:CVX), Oracle Corporation (NASDAQ:ORCL) is a dividend stock many elite hedge funds are eyeing today.

Ariel Investments, an investment management firm, mentioned Oracle Corporation (NASDAQ:ORCL) in its second-quarter 2021 investor letter. Here's what they said:

“Oracle Corp. (ORCL) is our largest holding and was our third largest contributor in the quarter, increasing +11.41%. Oracle changed its revenue accounting several years ago moving to an annual licensing fee for most of its software products. This smoothed the company’s earnings over time but did have the effect of reducing near-term revenue growth and lowering its P/E multiple. In our opinion, Oracle has never gotten the respect it deserves as a $40 billion cloud computing and software company. It has consistently traded at multiples well below that of cloud/ software competitors such as Microsoft. We track sell-side ratings as a gauge of whether a stock is in or out of favor. Oracle currently has an average rating of 1.89, meaning there are far fewer buy recommendations than hold ratings. In our opinion, the analyst community hostility to Oracle’s founder, Larry Ellison, has been a consistent headwind to the stock’s valuation.”

9. PPG Industries, Inc. (NYSE:PPG)

Number of Hedge Fund Holders: 30

Dividend Yield: 1.5%

Number of Years of Dividend Growth: 49

PPG Industries, Inc. (NYSE:PPG) is a US based Fortune 500 company. It supplies paints, coatings, and related specialty materials across the globe and operates in over 70 countries.

Mizuho's Christopher Parkinson holds a Buy rating on shares of PPG Industries, Inc. (NYSE:PPG) as of this October. The analyst has also raised his price target on the stock to $184.

The company's earnings history shows an EPS of $1.69 in the third quarter, beating estimates by $0.10. It shows a revenue of $4.37 billion as well, up 18.64% year over year and beating estimates by $120.75 million. PPG Industries, Inc. (NYSE:PPG) has also gained 12.35% year to date and 7.43% in the past year.

Madison Funds, an investment management firm, mentioned PPG Industries, Inc. (NYSE:PPG) in its third-quarter 2021 investor letter. Here's what they said:

“Regarding business activity, we have had companies report disruptions to current economic results from the aforementioned logistical challenges. The coatings industry and PPG have seen raw material shortages and escalating cost inflation from Gulf Coast petrochemical suppliers, while also experiencing lower demand from auto production customers due to semiconductor shortages. We are encouraged by the pricing escalators that PPG is enacting, which bodes well for recouping this year’s cost increases as the supply chain normalizes.”

8. BWX Technologies Inc (NYSE:BWXT)

Number of Hedge Fund Holders: 17

Dividend Yield: 1.7%

Number of Years of Dividend Growth: 6

BWX Technologies Inc (NYSE:BWXT) is a Virginia-based technology company. It primarily suppliers nuclear components and fuel to the US. According to the company's investor day presentation this November, it is expecting higher growth potential beyond 2024, making it a noteworthy dividend stock with the potential to grow. The comments were regarding its largest businesses: making reactors for nuclear-powered aircraft carriers and submarines, and its work in nuclear medicine.

This November, Maxim analyst Tate Sullivan reiterated a Buy rating on shares of BWX Technologies Inc (NYSE:BWXT). The analyst also holds a $68 price target on the stock.

BWX Technologies Inc's (NYSE:BWXT) third quarter earnings report shows an EPS of $0.63, beating the previous quarter's $0.62 EPS. The company's revenue was $498.73 million.

Out of 867, 17 hedge funds held stakes in BWX Technologies Inc (NYSE:BWXT) in the third quarter. The total stake value was $168 million. In the second quarter, 20 hedge funds held stakes in the company worth $160 million.

Upslope Capital Management, an investment management firm, mentioned BWX Technologies Inc (NYSE:BWXT) in its third-quarter 2021 investor letter. Here's what they said:

BWX Technologies designs and produces nuclear reactors, components and fuel, primarily for the U.S. Government and Navy (and, more recently, NASA). The company is the sole supplier for its Naval products (~75% of sales), which are used for the power and propulsion of all of the Navy’s aircraft carriers and submarines. With nuclear subs (aka “boomers”) forming the backbone of the “Sea” leg of the Nuclear Triad, BWX plays a vital and sensitive role supporting the national security of the United States. Of course, BWX is exceptionally well-positioned should the saber-rattling vis-à-vis China continue. The recent Aukus security pact, which may eventually benefit BWX, illustrates the urgent and strategic importance of maintaining a modern nuclear-powered sub fleet.

Even if relations with China stabilize (and hopefully they do), BWX shares seem poised to outperform. After four years of essentially going nowhere, the stock currently trades near the low-end of its historical valuation range – just over 13x EBITDA vs. typical range of 13-16x. With a literal monopoly position (albeit against a sole purchaser), BWX has historically generated modest top-line growth with attractive returns on capital (mid-20s). Given the stability of the business and its competitive position, as well as the current geopolitical backdrop, current valuation seems very reasonable.

Importantly, beginning in 2017 BWX embarked on an aggressive capex expansion program, eventually tripling capex as a percentage of sales. In addition to ramping capacity to support Navy growth, BWX spent heavily developing its medical/radioisotope business. While not yet concluded, there is light at the end of the tunnel that should bode well for shares. 2020 appears to have been the capex peak and BWX seems on track for more normalized capex by the end of 2022. This should lead to de-levering the balance sheet (from an already-reasonable 3x gross debt/EBITDA), a potential acceleration in capital returned to shareholders, and/or the prospect of increased M&A.

Lastly, while BWX’s core today is its Naval operations, there is long-term optionality from the other units (~25% of revenue), which are currently focused on Canadian nuclear power (fuel and components), medical, space (NASA) power, and microreactors. BWX faces little competition, if any, across many of these areas. A sizable portion (>50%) of the recent capex program was also invested in a new Mo-99/Tc99 radioisotope (essentially a cleaner, more cost efficient alternative to current products on market – used in cardiology, oncology, neurology, and diagnostics) production line that should lead to an acceleration in growth outside of Naval operations.

Major risk factors for BWX include the possibility of physical accidents, production defects and resulting liabilities, as well as cost pressures due to strained government budgets and/or rising input costs, some leverage (~2x net), and ESG flow headwinds (not fundamental, of course, but a reality).”

7. Amdocs Limited (NYSE:DOX)

Number of Hedge Fund Holders: 24

Dividend Yield: 2%

Number of Years of Dividend Growth: 6

Amdocs Limited (NYSE:DOX) is a software company operating globally and was founded in Israel. The company specialized in software and related services for communications, media, and financial services providers and digital enterprises. It is among the most notable dividend stocks with potential to grow, having reported over 25 new 5G operations and monetization projects in October.

In the fiscal fourth quarter of 2021, the EPS for Amdocs Limited (NYSE:DOX) was $1.16. The company's revenue was $1.09 billion, up 3.26% year over year and beating the previous quarter's revenue was $1.07 billion. Amdocs Limited (NYSE:DOX) has also gained 1.11% year to date and 6.84% in the past year.

Out of our 867 tracked hedge funds, 24 held stakes in Amdocs Limited (NYSE:DOX) in the third quarter, worth $824 million. The previous quarter, 29 hedge funds held stakes in the company worth $796 million.

Palm Valley Capital Management, an investment management firm, mentioned Amdocs Limited (NYSE:DOX) in its second-quarter 2021 investor letter. Here's what they said:

“The top contributors to the Fund’s second quarter returns (includes) Amdocs (ticker: DOX). Amdocs’ stock has fully recovered from the erroneous, widely disseminated anonymous short seller report issued on the final day of the first quarter. Amdocs’ organic growth is the strongest it has been in years, and the company is delivering excellent free cash flow.”

6. Emerson Electric Co. (NYSE:EMR)

Number of Hedge Fund Holders: 41

Dividend Yield: 2.2%

Number of Years of Dividend Growth: 26

Emerson Electric Co. (NYSE:EMR) is a manufacturing company based in the US. It is a Fortune 500 company that manufactures products and offers services for the industrial, commercial, and consumer markets. Analyst Chris Dankert from Loop Capital commented this November that the company can expect underlying customer capex demand to rise in 2022, driving up its fiscal year guidance.

Analyst Dankert holds a Buy rating on shares of Emerson Electric Co. (NYSE:EMR) as of this November as well.

The earnings history for Emerson Electric Co. (NYSE:EMR) shows an EPS of $1.21 in the fiscal fourth quarter of 2021. The EPS beat estimates by $0.03. The company's revenue was $4.95 billion. Emerson Electric Co. (NYSE:EMR) has also gained 15.77% year to date and 17.56% in the past year.

According to Insider Monkey's data, 41 hedge funds held stakes in Emerson Electric Co. (NYSE:EMR) in the third quarter, worth $671 million. Comparatively, 45 hedge funds held stakes in the company in the previous quarter, worth $854 million.

Like Pepsico, Inc. (NASDAQ:PEP), Target Corporation (NYSE:TGT), and Chevron Corporation (NYSE:CVX), Emerson Electric Co. (NYSE:EMR) is a popular dividend stock among investors today.

Click to continue reading and see 5 Dividend Stocks With Growth Potential.

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Disclosure: None. 10 Dividend Stocks With Growth Potential is originally published on Insider Monkey.