Updated on May 11th, 2022 by Bob Ciura
Income investors may have a tendency to focus on stocks with the highest dividend yields. But dividend growth is also an important consideration when constructing an income-focused portfolio.
While high-yield stocks are appealing for the income they provide today, dividend growth stocks are equally appealing due to the potential for even higher dividends down the road.
For example, the Dividend Aristocrats are an exclusive group of high-quality dividend growth stocks. The Dividend Aristocrats represent 65 companies in the S&P 500 Index, that have each raised their dividends for at least 25 consecutive years.
You can download an Excel spreadsheet of all 65 (with metrics that matter) by clicking the link below:
The Dividend Aristocrats are widely regarded as among the best dividend growth stocks an investor can buy. But they did not start out as Dividend Aristocrats. It is also useful for investors to consider stocks that may not have as long of a dividend history right now, but have the potential to become the next Dividend Aristocrats.
Investors should focus on high-quality companies with durable competitive advantages, consistent growth, and the ability to raise their dividends over the long term.
These 10 dividend growth stocks are not all on the list of Dividend Aristocrats. But in any case, they have the potential to raise their dividends at a high rate each year, and perhaps be among the future Dividend Aristocrats.
Table Of Contents
The top 10 list is comprised of stocks with dividend yields at or above the S&P 500 average (currently 1.5%), as well as forward payout ratios below 25%. All of the stocks have Dividend Risk scores of ‘C’ or better.
Finally, all 10 stocks have positive expected EPS growth over the next 5 years of at least 5% per year.
You can instantly jump to a specific stock by clicking on the links below:
- Dividend Growth Stock #10: Microchip Technologies (MCHP)
- Dividend Growth Stock #9: Skyworks Solutions (SWKS)
- Dividend Growth Stock #8: Cigna Corporation (CI)
- Dividend Growth Stock #7: Jack in the Box (JACK)
- Dividend Growth Stock #6: Tennant Company (TNC)
- Dividend Growth Stock #5: Ameriprise Financial (AMP)
- Dividend Growth Stock #4: Dover Corporation (DOV)
- Dividend Growth Stock #3: Qualcomm Inc. (QCOM)
- Dividend Growth Stock #2: Lowe’s Companies (LOW)
- Dividend Growth Stock #1: Pentair plc (PNR)
Dividend Growth Stock #10: Microchip Technologies (MCHP)
Microchip Technology develops, manufactures, and sells smart, connected and secure embedded control solutions used for a wide variety of applications. These include disruptive growth trends such as 5G, artificial intelligence, Internet of Things (IoT), and autonomous driving, amongst others, in key end markets such as automotive, aerospace and defense, communications.
The company’s strategic focus is that these solutions are cost-effective, offer high performance, with a wide voltage range operation, at extremely low power usage. Microchip Technology generates around $6 billion in annual revenues.
On February 3rd, 2022, Microchip Technology reported its Q3-2022 results for the quarter ending December 31st, 2021. Net sales were a record $1.79 billion, up 30% from the comparable period last year and 6.8% higher sequentially. Higher revenues were again powered by exceptional execution on delivering Microchip’s backlog and strong underlying demand despite the ongoing manufacturing capacity constraints amid supply chain constraints.
On a non-GAAP basis, EPS was $1.20 versus $0.81 in Q3-2021. Microchip once again hiked its quarterly dividend 9.1% sequentially, or 29.7% year-over-year, to $0.253.
Click here to download our most recent Sure Analysis report on MCHP (preview of page 1 of 3 shown below):
Dividend Growth Stock #9: Skyworks Solutions (SWKS)
Skyworks Solutions is a semiconductor company that designs, develops, and markets proprietary semiconductor products used worldwide. Its products include antenna tuners, amplifiers, converters, modulators, receivers, and switches.
In the most recent quarter, revenue grew 15% year-over-year. Adjusted diluted earnings per share of $3.14 compared to $3.36 per share in the same quarter last year. Overall, Skyworks delivered first-quarter solid results, with double-digit sequential growth in both revenue and earnings per share.
Skyworks has a strong balance sheet with over $1 billion in cash and cash equivalents and no debt. This gives the company tremendous flexibility and resiliency to offset some of its concentrated customer base risks and move forward with its growth plans. The dividend is very well covered by earnings, and we consider it very safe.
Click here to download our most recent Sure Analysis report on SWKS (preview of page 1 of 3 shown below):
Dividend Growth Stock #8: Cigna Corporation (CI)
Cigna is a leading provider of insurance products and services. The company’s products include dental, medical, disability and life insurance that it provides through employer-sponsored, government-sponsored and individual coverage plans.
The company has generated double-digit EPS growth over the past several years, even during recessions and the coronavirus pandemic.
Source: Investor Presentation
Cigna operates four business segments, including Evernorth, which provides pharmacy services and benefit management, U.S. Medical, which provides commercial and government health insurance, International Markets and Group Disability. Evernorth contributes 70% of annual revenues while Cigna Healthcare accounts for 24%. Cigna has annual revenues of ~$180 billion.
On May 6th, 2022, Cigna reported first quarter results for the period ending March 31st, 2022. For the quarter, revenue grew 7.4% to $44 billion, beating estimates by $530 million. Adjusted earnings-per-share of $6.01 compared to adjusted earnings-per-share of $4.73 in the prior year and was $0.83 above expectations.
Total pharmacy customers grew 6.4% to 107.4 million. Total medical customers grew 6.6% year-over-year to 17.8 million and was 4.2% higher quarter-over-quarter.
Cigna provided an updated outlook for 2022 as well. Revenue is still expected to be least $177 billion for the year. The company now projects adjusted earnings-per-share of at least $22.60, compared to $22.40 previously.
Click here to download our most recent Sure Analysis report on Cigna (preview of page 1 of 3 shown below):
Dividend Growth Stock #7: Jack in the Box (JACK)
Jack in the Box is a fast-food chain that operates and franchises hamburger chains in the U.S., with more than 2,200
restaurants in 21 states and Guam.
On December 6th, 2021, Jack in the Box announced that it will acquire Del Taco for $575 million in cash. The company expects the deal to grow its earnings-per-share at a mid-single-digit rate after the first year.
Source: Investor Presentation
The deal is expected to close in the first calendar quarter of 2022 and will be funded via the issuance of debt.
In late February, Jack in the Box reported (2/23/22) financial results for the first quarter of fiscal 2022 (ending 9/30/22). The company continued to face great inflationary pressures, including 11% wage inflation and increased expenses for food, packaging and utilities.
Management has provided a positive 5-year outlook, expecting 3%-5% annual sales growth thanks to 2%-3% same-store sales growth and 1%-3% unit growth.
In 2021, the company increased its dividend by 10%. The stock has a 2022 projected dividend payout ratio of 24.4%.
Click here to download our most recent Sure Analysis report on JACK (preview of page 1 of 3 shown below):
Dividend Growth Stock #6: Tennant Co. (TNC)
Tennant Company is a machinery company that produces cleaning products and that offers cleaning solutions to its customers. In the US, the company holds the market leadership position in its industry, but the company also sells its products in more than 100 additional countries around the globe. Tennant was founded in 1870.
Tennant Company reported its fourth quarter earnings results on February 24. The company announced that it generated revenues of $280 million during the quarter, which was 1% more than the top line number from the previous year’s quarter. Revenues continued to recover from the previous year, which was still feeling some lingering effects of the pandemic. Revenues also were up slightly on a sequential basis.
Source: Investor Presentation
Tennant Company generated earnings-per-share of $0.71 during the fourth quarter, which was more than what the analyst community had forecasted, as the consensus estimate was beaten by $0.08. The company hit the high-end of its earnings-per-share guidance for 2021, with earnings-per-share coming in at $4.39, up strongly versus 2021.
Management is forecasting that adjusted earnings-per-share will fall into a range of $4.40 to $5.00 in 2022, which would be a strong improvement versus 2021, and which means new record profits for the current year.
Tennant last increased its dividend by 9% in 2021.
Click here to download our most recent Sure Analysis report on Tennant (preview of page 1 of 3 shown below):
Dividend Growth Stock #5: Ameriprise Financial (AMP)
Ameriprise Financial has more than $1 trillion in assets under management. The company’s operating segments include Advice & Wealth Management, Asset Management, Annuities, and Protection (insurance products).
On April 25th, 2022, Ameriprise Financial increased its quarterly dividend 10.6% to $1.25, extending the company’s dividend growth streak to 18 consecutive years.
On April 25th, 2022, Ameriprise Financial announced first quarter earnings results for the period ending March 31st, 2022. Revenue improved 9.3% to $3.66 billion, but was $60 million lower than expected. Adjusted earnings-per-share of $5.98 compared favorably to the prior year’s result of $5.43 and was $0.08 above estimates. Total assets under management, or AUMs, increased 17% to $1.3 trillion.
Click here to download our most recent Sure Analysis report on Ameriprise (preview of page 1 of 3 shown below):
Dividend Growth Stock #4: Dover Corporation (DOV)
Dover Corporation is a diversified global industrial manufacturer with annual revenues of just over $6 billion. Dover is composed of five reporting segments: Engineered Systems, Clean Energy & Fueling, Pumps & Process Solutions, Imaging & Identification and Climate & Sustainability Technologies. Slightly more than half of revenues come from the U.S., with the remainder coming from international markets.
On August 5th, 2021, Dover announced that it was raising its dividend 1% for the September 15th, 2021 payment, marking 66 consecutive years of dividend growth. This is the second-longest dividend growth streak among U.S. companies.
On April 21st, 2022 Dover reported first quarter earnings results for the period ending March 31st, 2022. Revenue increased nearly 10% to $2.05 billion, topping estimates by $20 million. Adjusted earnings-per-share of $1.90 compared favorably to $1.81 in the prior year and was $0.07 better than expected.
Organic revenue remains strong, with the company seeing a 9% gain in the first quarter. Dover’s backlog grew 54% year-over-year and 5% quarter-over-quarter to $3.4 billion.
Dover reaffirmed guidance for 2022. Adjusted earnings-per-share are expected in a range of $8.45 to $8.65 with revenue projected to grow 8% to 10%, including 7% to 9% organic growth.
Click here to download our most recent Sure Analysis report on Dover (preview of page 1 of 3 shown below):
Dividend Growth Stock #3: Qualcomm Inc. (QCOM)
Qualcomm, as it is known today, develops and sells integrated circuits for use in voice and data communications. The chip maker receives royalty payments for its patents used in devices that are on 3G and 4G networks.
On April 27th, 2022, Qualcomm announced results for the second quarter of fiscal year 2022 for the period ending March 31st, 2022 (the company’s fiscal year ends September 30th, 2022). Revenue surged 41.1% to $11.2 billion, topping expectations by $600 million. Adjusted earnings-per-share of $3.21 compared very favorably to $1.90 in the previous year and was $0.29 ahead of estimates.
Qualcomm recently increased its dividend by 10%, and the stock now yields 2.2%. The company has increased its dividend for 20 consecutive years.
Click here to download our most recent Sure Analysis report on Qualcomm (preview of page 1 of 3 shown below):
Dividend Growth Stock #2: Lowe’s Companies (LOW)
Lowe’s Companies is the second-largest home improvement retailer in the US (after Home Depot). Lowe’s operates or services more than 2,200 home improvement and hardware stores in the U.S. and Canada.
The company has generated strong growth in the past few years, fueled by the strong U.S. economy and housing market.
Source: Investor Presentation
Lowe’s reported fourth quarter and full year results on February 23rd . Total sales for the fourth quarter came in at $21.3 billion compared to $20.3 billion in the same quarter a year ago. Comparable sales increased 5%, while U.S. home improvement comparable sales increased 5.1%. Net earnings of $1.2 billion rose from $978 million in 4Q 2020. Diluted earnings per share of $1.78 was a 35% increase from $1.32 a year earlier.
For the full fiscal year, Lowe’s generated diluted EPS of $12.04. The company repurchased 16.3 million shares in 2021 for $13.1 billion. Additionally, they paid out $2 billion in dividends. The company remains in a strong liquidity position with $1.1 billion of cash and cash equivalents.
The company provided a fiscal 2022 outlook and believes they can achieve diluted EPS in the range of $13.10 to $13.60 on total sales of roughly $98 billion. Lowe’s expects to repurchase $12 billion worth of common shares in 2022.
In 2021, Lowe’s increased its dividend by 33%.
Click here to download our most recent Sure Analysis report on Lowe’s (preview of page 1 of 3 shown below):
Dividend Growth Stock #1: Pentair plc (PNR)
Pentair operates as a pure–play water solutions company with 3 segments: Aquatic Systems, Filtration Solutions, and Flow Technologies. Pentair was founded in 1966. Pentair has increased its dividend for more than four decades in a row, when adjusted for spin–offs.
Pentair reported its first quarter earnings results on April 21. Core sales, which excludes the impact of currency rate movements, acquisitions, and dispossessions, were up 12% year over year.
Pentair recorded earnings-per-share of $0.85 for the first quarter, which was up by 5% year over year.
You can see a snapshot of the company’s fiscal first-quarter results in the image below:
Source: Investor Presentation
For fiscal 2022, Pentair is forecasting earnings-per-share in a range of $3.70 to $3.80, which indicates solid earnings-per-share growth of around 13% compared to the $3.32 the company earned in 2021.
Click here to download our most recent Sure Analysis report on Pentair (preview of page 1 of 3 shown below):
Final Thoughts
Investors should not ignore dividend growth stocks simply because many have low current dividend yields. Companies with strong business models, competitive advantages, and growth potential are attractive regardless of their starting yields. In fact, stocks with lower dividend yields today could actually outperform high-yield stocks if they can grow their earnings and dividends at a high rate over the long-term.
Dividend growth unleashes the power of compounding interest. There are many cases in which dividend growth stocks could produce a higher yield on cost over time than a stock with a higher current yield but little or no dividend growth. These 10 dividend growth stocks have the potential to raise their dividends by 10% per year or more for the foreseeable future, which makes them an attractive combination of dividend yield and growth.
Other Dividend Lists
The Dividend Aristocrats list is not the only way to quickly screen for stocks that regularly pay rising dividends.
- The High Yield Dividend Aristocrats List is comprised of the 20 Dividend Aristocrats with the highest current yields.
- The Dividend Achievers List is comprised of ~350 stocks with 10+ years of consecutive dividend increases.
- The Dividend Kings List is even more exclusive than the Dividend Aristocrats. It is comprised of 38 stocks with 50+ years of consecutive dividend increases.
- The High Yield Dividend Kings List is comprised of the 20 Dividend Kings with the highest current yields.
- The Blue Chip Stocks List: stocks that qualify as Dividend Achievers, Dividend Aristocrats, and/or Dividend Kings
- The High Dividend Stocks List: stocks that appeal to investors interested in the highest yields of 5% or more.
- The Monthly Dividend Stocks List: stocks that pay dividends every month, for 12 dividend payments per year.
- The Dividend Champions List: stocks that have increased their dividends for 25+ consecutive years.
Note: Not all Dividend Champions are Dividend Aristocrats because Dividend Aristocrats have additional requirements like being in The S&P 500. - The Dividend Contenders List: 10-24 consecutive years of dividend increases.
- The Dividend Challengers List: 5-9 consecutive years of dividend increases.