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9 Great Dividend Growth Stocks to Buy

James Brumley, Contributing Writer, Kiplinger.com

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Dividend growth rarely goes out of style, but sometimes investors need a little reminder about the importance of stocks that consistently and generously raise their payouts.

The most recent refresher was the near-bear market in the fourth quarter of 2018. Stocks took a sharp turn for the worst beginning in October. The market rolled over, and each time it looked like stocks might finally start to recover, they managed to find their way to lower lows.

They didn't stay there, of course. Equities have been firmly rallying since the Christmas break, and they very well remain on their bullish path.

Regardless of how things may take shape going forward, however, stocks exposed their vulnerability. Safety and reliability became priorities here in the latter stage of an economic expansion. Consistent (and rising) income suddenly were appreciated once more.

Here's a rundown of nine great dividend growth stocks to buy. They don't just offer nice yields; they also have a history of upping the ante on their payouts as well. That'll come in handy if interest rates begin rising again, ratcheting up the pressure on dividend stocks that can't beef up their payouts quite as quickly as others can.

SEE ALSO: 57 Dividend Stocks You Can Count On in 2019


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Market value: $223.6 billion

Dividend yield: 6.8%

If AT&T (T, $30.22) shareholders thought the safety and reliability of a telecom company would shield them during the market's recent setback, they were sorely mistaken. The stock lost nearly 20% from its October peak, and while it has rebounded somewhat, it's still almost 30% off its early 2017 highs.

The market simply has seen the glass as half-empty rather than half-full every opportunity it has had to make such a decision, concerned by what looks like a mountain of debt.

Sure Dividend CEO Ben Reynolds isn't fazed, though. "Fears surrounding the company's debt burden are largely overblown," he says. "The company's management has a clear and actionable plan for debt reduction and adjusted earnings-per-share growth ahead."

"The market is not appreciating AT&T at current prices. The company traded for an average dividend yield of 6.4% in 2009 during the worst year of The Great Recession. The stock's dividend yield is 6.7% today," Reynolds says.

The telecom giant has certainly proven its mettle when it comes to improving its income that supports a growing payout. Sure Dividend's chief touts the fact that AT&T has increased its dividend for 36 consecutive years, growing its quarterly dividend from 24.4 cents per share two decades ago to 51 cents today.

SEE ALSO: 19 Best Retirement Stocks to Buy in 2019

Johnson & Johnson

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Market value: $371.6 billion

Dividend yield: 3.6%

Johnson & Johnson (JNJ, $138.56) still is walking in the shadow of a potential asbestos-related liability. But even if the worst-case scenario takes shape on that front, J&J remains well-positioned to continue growing its bottom line that has enabled it to be among the longest-running dividend growth stocks at 56 straight years of improved payouts.

Investors know the company's consumer brands and over-the-counter products well enough. Not only has it leveraged the Johnson & Johnson name well beyond baby shampoo, but the company also owns Band-Aid brand bandages, Tylenol, Listerine and more.

What many investors may not realize is how big of a pharmaceutical player Johnson & Johnson is. Roughly half of its revenue is driven by prescription drugs, led by the likes of Zytiga, Imbruvica and Stelara. Rounding out the revenue mix is a medical device and equipment arm that makes and markets surgical and orthopedic equipment.

Its diverse portfolio hasn't always translated into slow and steady revenue growth. The top line has bumped into a few headwinds over the years, subsequently crimping earnings growth. But JNJ historically has dished out only about 60% of its profits as dividends, giving the company plenty of room to keep earnings ahead of its payout and maintain the fiscal flexibility the organization needs.

SEE ALSO: 18 Dividend Aristocrats That Have Gone on Deep Discount


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Market value: $116.4 billion

Dividend yield: 5.5%

It's been largely overlooked of late, but AbbVie (ABBV, $78.08) currently sports the second-best dividend yield among all the major pharmacy names. Its yield of 5.5% is second only to that of GlaxoSmithKline (GSK), which is paying a robust 6.0%.

More often than not, there's something of a trade-off when yields are strong. Either the stock is richly priced, or dividend growth is minimal, or both. Neither is the case with AbbVie, though. It's trading at a forward-looking P/E of just more than 8, and ABBV increased its dividend by more than 11% recently after a healthy 35% improvement in 2018. Since the company's establishment in 2013, after being spun off from Abbott Laboratories (ABT), the dividend has grown by 155%. More of the same is likely in store.

AbbVie's unusually high yield and oddly low forward-looking P/E, by the way, is largely the result of fears that the company is moving toward a patent cliff. Its top-selling Humira saw a key part of its patent protection in Europe expire in October 2018, though the drug shouldn't have to face serious biosimilar competition in the United States until 2023. Still, biopharma stocks tend to price in headwinds (and tailwinds) years in advance, and AbbVie is no exception to that norm.

However, AbbVie's doubters may have be acting and thinking far more aggressively than merited, particularly given its pipeline. Immunology drugs risankizumab and upadacitinib, in late-stage trials right now, are both potential blockbusters, while already approved and proven drugs such as Orilissa and Imbruvica are being considered for several new indications.

SEE ALSO: 10 Blockbuster Drugs of the Future


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Market value: $199.4 billion

Dividend yield: 2.8%

Admittedly, 3M (MMM, $207.10) isn't the company it used to be. There was a time not too long ago when the maker of everything from Post-it notes to health-care supplies to air filters to road signs was able to flex its diversity muscle and keep competitors at bay. The advent of the internet and the introduction of new manufacturing technologies, however, has allowed smaller companies to turn 3M's size into a liability.

Still, that diverse lineup of products has allowed the company to further cement its place in the world among the best dividend growth stocks. 3M has upped its per-share payout every year for the past 61 years. It has dished out a dividend of some size every year for more than 100 years.

Some observers note the company's already tepid growth is slowing. However, 3M is (finally) addressing that reality. It sold almost all of its communications business, for instance, as it commits more resources and energy toward higher-margin opportunities such as M*Modal. The company announced the acquisition of the health-care technology outfit in December, and while dilution will shave 10 cents worth of per-share profit from 2019's bottom line, 3M may find even more much-needed upside with the deal and others like it.

SEE ALSO: The Kiplinger Dividend 15: Our Favorite Dividend-Paying Stocks

Walgreens Boots Alliance

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Market value: $57.6 billion

Dividend yield: 2.9%

The health-care market, and the pharmaceutical market in particular, has been thoroughly shaken and stirred over the course of the past several years. Drugstores, small and large, haven't been immune to the turmoil. Indeed, they've largely been on the wrong side of the table, as internet-based options have offered some price relief for individuals and their insurers.

The dust finally might be settling for this sliver of the health-care market, though, if only because there's little more disruption to be done. Emerging from the shakeup as a dividend-paying standout is Walgreens Boots Alliance (WBA, $60.68).

"Walgreens Boots Alliance is a bargain and should be owned in 2019," says David Gilreath, CIO of registered investment advisory firm Sheaff Brock. He points out that shares are at multiyear lows despite impressive growth. "2019's expected earnings per share should be 68% higher than 2015, their sales should be 33% higher, and cash flow per share 65% higher."

More important, those are the underpinnings for ongoing increases in the drugstore chain's dividend, which currently yields nearly 3% and has grown every year for the past 43.

Gilreath thinks this kind of consistency is going to mean even more this year than it usually does. "The volatility of the broad market has been a benefit to stable, high-dividend-paying stocks," he says. "The political and economic volatility will probably increase (in 2019), making this company a good harbor in the storm."

SEE ALSO: The 10 Best (And 10 Worst) Stocks of This 10-Year Bull Market

Eli Lilly

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Market value: $127.6 billion

Dividend yield: 2.1%

It's often upstaged by more prolific names like Merck (MRK) or Pfizer (PFE), but the fact that Eli Lilly (LLY, $123.50) stands in the shadow of higher-profile names need not deter newcomers looking for reliable dividends, and reliable dividend growth.

The trailing yield of 2.1% isn't exactly jaw-dropping. Neither is the forward-looking P/E of 19. But the roughly 15% jump in the payout this year to 64.5 cents per share is nice. So is a projected top line of between $25.3 billion and $25.8 billion, versus analyst estimates of only $24.8 billion. Earnings guidance of between $5.90 and $6.00 per share also was better than the $5.82 analysts were calling for.

Most compelling about Eli Lilly isn't its metrics, however. It's the diversity of what has become a surprisingly potent portfolio. CFO Joshua Smiley said about the 10 new drugs brought to the market just since 2014: "These 10 medicines are launching in some of the fastest growing categories and continue to deliver growth through increased volume, not price." Among those 10 names, most of which will enjoy patent protection for several more years, are powerhouses such as Trulicity, Taltz and diabetes drug Jardiance.

SEE ALSO: The Best Health-Care Stocks to Buy for 2019


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Market value: $138.6 billion

Dividend yield: 2.6%

In good times and bad, one thing is certain - consumers will always want/need cheap food in a hurry. And McDonald's (MCD, $181.08) has become king of the quick-service world by mastering the art.

The journey hasn't always been pretty. It was only a few years ago that McDonald's sought to revitalize an all-too-familiar menu with new options that didn't quite align with its core competencies. In 2014, it culled some less important items from the menu to make time and room for custom-built burgers, but the program proved too time-consuming (for workers and customers) and too expensive for the value-minded customers. All-day breakfast, despite all of its hype, isn't drawing as big a crowd as hoped. It also has managed to cultivate some ill will with franchisees of late. It's anything but infallible.

But at the end of the day, McDonald's still is a reliable cash cow that gets a lot right, and that has been able to fund dividend increases every year since it began doling out cash in 1976.

One item to note for newcomers: Revenue has been trending lower since 2014, but much of that decline has been by design. The organization is aiming to reduce the number of stores it owns and operates for itself by selling them to franchisees. Franchise fees contribute less revenue on a per-store basis, but it's much higher-margin revenue that leads to profit expansion.

SEE ALSO: 7 Dividend ETFs for Investors of Every Stripe


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Market value: $20.4 billion

Dividend yield: 2.4%

Contrary to popular belief, Clorox (CLX, $159.07) isn't just a bleach company. It also uses the well-established brand name to sell disinfectant wipes, toilet bowl cleaners and disinfectant sprays. It has even ventured into the laundry arena and dusting solutions.

But a close inspection reveals one common element among its products: They're all the kinds of goods that consumers purchase over and over again. Those consumers also are relatively brand-loyal, setting Clorox up to deliver what should be its 42nd consecutive year of dividend growth.

And the consumer staples company may have a little more up its sleeve than most investors presently appreciate.

One of the chief concerns surrounding CLX stock is its relatively frothy valuation; shares currently trade at more than 26 times their trailing earnings, and more than 23 times forward earnings estimates. And while its dividend yield is in line with companies of its ilk, it's still an uncomfortable price.

But in light of Clorox's so-called 2020 Strategy, bolstered by its related Go Lean Strategy, the company already is on a margin-expansion path that should start to become evident in the latter part of the current year.

Though the company's debt remains an ongoing concern, so far it hasn't proven problematic in terms of dividend growth. While anything is possible, Clorox has done a fair enough job of managing its debt load to at least maintain its history of improved dividends.

SEE ALSO: 7 Great High-Yield Dividend Stocks That Nobody Talks About

Genuine Parts

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Market value: $15.6 billion

Dividend yield: 2.9%

Finally, while sales of new automobiles are slowing, that's not inherently a liability for auto parts manufacturer Genuine Parts (GPC, $106.36), for a couple of reasons.

One of those reasons: Genuine Parts (which you probably know via its NAPA Auto Parts brand) will benefit from aging cars just like AutoZone (AZO) and O'Reilly Automotive (ORLY) will. More than that, though, Genuine Parts isn't just auto parts. It also offers industrial machinery parts through its Motion Industries arm, while its S.P. Richards division sells a variety of office supplies.

This level of product diversity, all of which is at least somewhat resistant to cycles, has allowed Genuine Parts to raise its dividend for 63 consecutive years. They haven't been paltry increases, either. The annual payout has gone from $1.60 per share in 2009 to $2.88 last year, and the company is projected to pay out $3.05 this year.

Yet, the dividend remains only a modest piece of the company's overall profits. The company earned $5.50 per share last year, enough to cover the dividend almost twice. That leaves plenty of funding for growth initiatives, or if necessary, lots of wiggle room to continue growing the dividend should GPC bump into a headwind.

James Brumley was long T as of this writing.

SEE ALSO: The 25 Best S&P 500 Stocks of the Past 50 Years


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