Dividend growth investing strategy is in the spotlight these days as investors scramble to offset market risks in a higher-for-longer environment where interest rates aren’t expected to come down anytime soon. Matt Powers, Powers Advisory Group President, while talking to CNBC, recently said that while a high interest rate environment is a headwind for dividend growth strategy, he is looking to buy more dividend growth stocks and practice patience in the current scenario. The analyst said his dividend income strategy is looking to increase total returns by preferring dividend growth stocks instead of high-yield dividend stocks. Matt Powers said that he looks for 10-year track record of dividend growth while choosing stocks.
How to Choose Dividend Growth Stocks
He highlighted that payout ratio is one of the most important metrics in dividend strategies. For example, one of the notable picks of Matt Powers is MasterCard, whose payout ratio is less than 30%. This, according to Powers, shows that the company is investing significantly to grow. He’s also picking up Hershey on the back of rising cocoa prices. Lockheed Martin is another dividend growth stock pick of the analyst amid the geopolitical situation that bodes well for companies like Lockheed. This shows instead of limiting focus to yields, dividend growth investors should focus on core business strengths and catalysts because these are the factors that affect dividend payment and income growth trajectory of companies.
Dividend investing has always sparked investor interest amid a proven track record of dividend strategies. A Raymond James report titled “The Power of Dividends in a Portfolio” highlighted that $1 invested in the S&P 500 in December 1929 would have grown to $57 over the following 75 years. But the same $1 invested along with reinvested dividends would have grown to a whopping $1,353.
Dividend stocks have also contributed heavily to the total market returns over the past several decades. From 1930 to 2023, 40% of the annualized total return of the S&P 500 came from payment and reinvestment of dividends.
Methodology
For this article, we first listed down all dividend aristocrat stocks — the S&P 500 companies with 25+ years of consecutive dividend increases. From these stocks we chose 10 dividend aristocrat stocks with the highest number of hedge fund investors.
10. Linde PLC (NASDAQ:LIN)
Number of Hedge Fund Investors: 65
With over three decades of consistent dividend increases, Linde PLC (NASDAQ:LIN) is one of the best dividend aristocrats to buy according to hedge funds. Insider Monkey’s database of 919 hedge funds updated for the first quarter of 2024 shows that 65 hedge funds had stakes in Linde PLC (NASDAQ:LIN). The biggest stakeholder of Linde PLC (NASDAQ:LIN) during this period was Alexander Mitchell’s Scopus Asset Management which owns a $29 million stake in Linde PLC (NASDAQ:LIN).
In April, Mizuho Securities upgraded Linde plc to Buy from Neutral. Analysts at the firm believe the chemical company can outperform the market with earnings growth despite flat volumes.
Mizuho has a $510 price target on Linde PLC (NASDAQ:LIN)
9. Target Corp (NYSE:TGT)
Number of Hedge Fund Investors: 67
Target Corp (NYSE:TGT) has increased its dividends for 52 years without a break, an achievement few could lay claim to especially in the retail industry where things are volatile amid fledgling consumer sentiment. Morgan Stanley earlier this month talked about favorable stocks in the current volatile environment. Morgan Stanley analysts recommended Target Corp (NYSE:TGT) in the Consumer Staples category as it believes Target Corp (NYSE:TGT), along with some other retailers, offer “value” in an environment where consumers are cutting back on spending.
Earlier this month, Target Corp (NYSE:TGT) announced that it plans to cut prices for a whopping 5,000 frequently shopped items across its stores.
Of the 919 hedge funds tracked by Insider Monkey 67 hedge funds reported owning stakes in Target Corp (NYSE:TGT). The biggest stakeholder of Target Corp (NYSE:TGT) during this period was Ric Dillon’s Diamond Hill Capital which had a $500 million stake in Target Corp (NYSE:TGT).
Diamond Hill Large Cap Strategy stated the following regarding Target Corporation (NYSE:TGT) in its fourth quarter 2023 investor letter:
Other top contributors in Q4 included Allstate, American International Group (AIG) and Target Corporation (NYSE:TGT). US-based mass retailer Target is capitalizing on cleaner inventory, lower freight costs and improved efficiency to improve profitability — and investors rewarded shares accordingly in Q4.
8. Procter & Gamble Co (NYSE:PG)
Number of Hedge Fund Investors: 69
Procter & Gamble Co (NYSE:PG) is one of the most coveted dividend stocks in the market, with 68 years of consistent dividend increases. Insider Monkey’s database of 919 hedge funds shows that 69 hedge funds reported owning stakes in Procter & Gamble Co (NYSE:PG) as of the end of the March quarter. The biggest stake in Procter & Gamble Co (NYSE:PG) in this period is of Ken Fisher’s Fisher Asset Management which owns a $2.7 billion stake in Procter & Gamble Co (NYSE:PG). In April Procter & Gamble Co (NYSE:PG) announced a 7% dividend increase, cementing its reputation as one of the top dividend-paying companies that remain strong despite market volatility.
Procter & Gamble Co’s (NYSE:PG) annual dividend growth rate over the past three years came in at 6.70%, while the growth rate stood at 4.50% over the past decade.
In April, Procter & Gamble Co (NYSE:PG) posted fiscal Q3 results. Adjusted EPS in the period came in at $1.52, beating estimates by $0.11. Revenue in the quarter inched up 0.6% year over year to $20.2 billion, missing estimates by $240 million.
Madison Sustainable Equity Fund stated the following regarding The Procter & Gamble Company (NYSE:PG) in its fourth quarter 2023 investor letter:
“We sold The Procter & Gamble Company (NYSE:PG). After two years of strong pricing growth, the company is facing slower market growth in both the US and Europe. China, the company’s second largest individual market, is facing a protracted downturn with poor visibility on when fundamentals will improve.”
7. AbbVie Inc (NYSE:ABBV)
Number of Hedge Fund Investors: 70
AbbVie Inc (NYSE:ABBV) has a dividend king status, having increased its payout every year since 1972. It’s also a high-yield dividend stock with over 3.8% dividend yield. AbbVie Inc’s (NYSE:ABBV) annual dividend growth rate over the past three years came in at 7.80%. AbbVie Inc’s (NYSE:ABBV) earnings growth and fundamentals show its dividend is safe. Over the past three years AbbVie Inc’s (NYSE:ABBV) earnings growth came in at 49.10% per year. Its payout ratio stands at 67%.
Insider Monkey’s analysis of 919 hedge fund portfolios shows that 72 hedge funds reported owning stakes in AbbVie Inc (NYSE:ABBV) as of the end of the March quarter. The biggest stake in AbbVie Inc (NYSE:ABBV) during this period was Phill Gross and Robert Atchinson’s Adage Capital Management which owns a $438 million stake in AbbVie Inc (NYSE:ABBV).
Carillon Eagle Mid Cap Growth Fund made the following comment about AbbVie Inc. (NYSE:ABBV) in its Q3 2023 investor letter:
“AbbVie Inc. (NYSE:ABBV) reported strong, broad-based second-quarter performance that exceeded analysts’ expectations. The company’s raised guidance was a nice recovery after its mildly disappointing first-quarter report.”
6. NextEra Energy Inc (NYSE:NEE)
Number of Hedge Fund Investors: 72
Utilities company NextEra Energy Inc (NYSE:NEE) ranks sixth in our list of the best dividend aristocrat stocks to buy now according to hedge funds. The company has upped its dividend each year since 1995. Over the past three years NextEra Energy Inc’s (NYSE:NEE) annual dividend growth rate came in at 10.10%, while its annual dividend growth rate over the past 10 years was 11.40%. NextEra Energy Inc’s (NYSE:NEE) payout ratio is 52%, which means NextEra Energy Inc (NYSE:NEE) is still allocating significant resources for future growth.
Insider Monkey’s database of 919 hedge funds shows that 72 hedge funds reported owning stakes in NextEra Energy Inc (NYSE:NEE) as of the end of the March quarter. The biggest stake in NextEra Energy Inc (NYSE:NEE) is owned by Stuart J. Zimmer’s Zimmer Partners which owns a $175 million stake in NextEra Energy Inc (NYSE:NEE).
NextEra Energy Inc’s (NYSE:NEE) earnings growth trajectory is also strong. Over the past three years NextEra Energy Inc (NYSE:NEE) has grown its earnings by 40.20% per year on average.
Last month, NextEra Energy Inc (NYSE:NEE) posted Q1 results. Adjusted EPS in the period came in at $0.91, surpassing estimates by $0.13. Revenue in the quarter fell 14.7% year over year to $5.73 billion, missing estimates by $750 million.
ClearBridge Value Equity Strategy stated the following regarding NextEra Energy, Inc. (NYSE:NEE) in its fourth quarter 2023 investor letter:
“We added a new position in NextEra Energy, Inc. (NYSE:NEE), in the utilities sector, which acquires, owns and manages contracted clean energy projects in the U.S. The company was at the center of the defensive stock storm when it slowed its renewable growth outlook modestly in late September, and the stock collapsed almost 30% in less than two weeks. We saw this as an opportunity to invest in arguably the best combination of a regulated utility and an experienced renewable operator with good long-term growth options. Even at a much-reduced estimated growth rate from higher financing costs, which will likely prove to be conservative, our estimate of intrinsic business value is materially higher.”
5. Sherwin-Williams Co (NYSE:SHW)
Number of Hedge Fund Investors: 78
With 45 years of consistent dividend increases, paints and coatings company Sherwin-Williams Co (NYSE:SHW) is one of the best dividend aristocrat stocks to buy now according to smart money investors. Last month, KeyBanc upgraded the stock to Overweight from Sector Weight. KeyBanc analysts acknowledged the soft Q1 performance of Sherwin-Williams Co (NYSE:SHW), but urged investors to focus on the “volume recovery story” they expect to “unfold” in 2025-2026. KeyBanc has a $400 price target on Sherwin-Williams Co (NYSE:SHW) shares.
Insider Monkey’s database of 919 hedge funds shows that 78 hedge funds had stakes in Sherwin-Williams Co (NYSE:SHW) as of the end of March this year.
4. Johnson & Johnson (NYSE:JNJ)
Number of Hedge Fund Investors: 80
Johnson & Johnson (NYSE:JNJ) has been increasing its dividends without a break since 1963. Johnson & Johnson (NYSE:JNJ) ended the fourth quarter of 2023 with FCF of $18 billion. With about $15 billion invested in R&D and a healthy pipeline, Johnson & Johnson’s (NYSE:JNJ) dividend future looks safe. Johnson & Johnson’s (NYSE:JNJ) payout ratio stands at just 44%, which shows it’s funneling a lot of resources in business growth.
Insider Monkey’s database of 919 hedge funds updated for Q1’2024 shows that 80 hedge funds had stakes in Johnson & Johnson (NYSE:JNJ) as of the end of March this year.
ClearBridge Large Cap Value Strategy made the following comment about Johnson & Johnson (NYSE:JNJ) in its Q3 2023 investor letter:
“The health care space provided some opportunities in the quarter, as we increased our exposure to medical device company Becton, Dickinson as well as large cap pharmaceutical company Johnson & Johnson (NYSE:JNJ). Johnson & Johnson recently spun out its consumer health care business, becoming a more focused yet broadly diversified pharmaceutical and medtech company.”
3. Exxon Mobil Corp (NYSE:XOM)
Number of Hedge Fund Investors: 81
With over four decades of consistent dividend growth, Exxon Mobil Corp (NYSE:XOM) rank third in our list of the best dividend aristocrat stocks to buy now. Over the past five years, Exxon Mobil Corp’s (NYSE:XOM) dividend growth rate came in at 2.20% per year. Exxon Mobil Corp’s (NYSE:XOM) future looks bright. Exxon Mobil Corp (NYSE:XOM) has pledged a whopping $20 billion and $25 billion in annual capex spending through 2027. During the first nine months of last year, Exxon Mobil Corp’s (NYSE:XOM) FCF came in at $28.1 billion. Out of that, just $11.1 billion were paid in dividends. Exxon Mobil Corp’s (NYSE:XOM) payout ratio is just 46%, which means it’s spending for business growth, a healthy sign.
As of the end of the first quarter of 2024, 81 hedge funds reported owning stakes in Exxon Mobil Corp (NYSE:XOM). The biggest stakeholder of Exxon Mobil Corp (NYSE:XOM) during this period was Ken Fisher’s Fisher Asset Management which owns a $3 billion stake in Exxon Mobil Corp (NYSE:XOM).
Madison Dividend Income Fund stated the following regarding Exxon Mobil Corporation (NYSE:XOM) in its first quarter 2024 investor letter:
“This quarter we are highlighting Exxon Mobil Corporation (NYSE:XOM) as a relative yield example in the Energy sector. XOM is a leading integrated oil and natural gas company. It has upstream assets that develop and produce oil and natural gas, along with downstream refining and chemical manufacturing assets. We believe it has attractive low-cost acreage in the Permian basin and has a sizeable growth opportunity in Guyana. Further, we think XOM has a sustainable competitive advantage due to size and scale, and its ability to integrate refining and chemical assets provides a low-cost advantage versus competitors.
Our thesis on XOM is that it will grow production volumes of oil and gas moderately over the next few years, while limiting excessive capital investment that plagued the industry from 2014-2020. Production growth will come from its 2023 acquisition of Pioneer Natural Resources, which is the largest producer in the Permian basin. XOM plans to double its Permian output by 2027, to 2 million barrels per day. Capital spending will be limited to $20-25 billion per year through 2027, which should allow for significant amounts of cash to be returned to shareholders including a $35 billion share repurchase program and continued dividend increases. Higher oil prices would provide a tailwind to our thesis but are not necessary. We think XOM can grow earnings and cash flow if oil prices remain above $60 per barrel…” (Click here to read the full text)
2. Walmart Inc (NYSE:WMT)
Number of Hedge Fund Investors: 88
Walmart Inc (NYSE:WMT) being the biggest retailer in the US and the go-to grocer for millions of Americans with huge cash flows is one of the best and safe dividend aristocrat stocks to buy now. Walmart Inc (NYSE:WMT) has increased its dividends every year since 1975. That’s 49 years of consistent dividend increases. Walmart Inc’s (NYSE:WMT) payout ratio is just 35%, which means Walmart Inc (NYSE:WMT) is funneling a substantial amount of cash it has for future business growth.
A total of 88 hedge funds in Insider Monkey’s database of 919 hedge funds reported owning stakes in Walmart Inc (NYSE:WMT). The biggest stakeholder of Walmart Inc (NYSE:WMT) during this period was Ken Fisher’s Fisher Asset Management, with a $2.6 billion stake in Walmart Inc (NYSE:WMT).
Earlier this month Walmart Inc (NYSE:WMT) posted solid Q1 results. Adjusted EPS in the period came in at $0.60, beating estimates by $0.08. Revenue in the quarter jumped 6% year over year to $161.5 billion, surpassing estimates by $3.36 billion.
1. S&P Global Inc (NYSE:SPGI)
Number of Hedge Fund Investors: 97
S&P Global Inc (NYSE:SPGI) has 52 years of consistent dividend increases under its belt. In April S&P Global Inc (NYSE:SPGI) posted strong Q1 results and boosted its guidance. Adjusted EPS in the March quarter came in at $4.01, surpassing estimates by $0.35. Revenue in the quarter jumped 10.4% year over year to $3.49 billion, beating estimates by $80 million.
S&P Global Inc (NYSE:SPGI) now expects revenue growth of 6.0% – 8.0% in 2024, compared to the Street’s consensus of 7.42%.
Insider Monkey’s database of 919 hedge funds shows that 97 funds had stakes in S&P Global Inc (NYSE:SPGI) as of the end of the September quarter. The most significant stake in S&P Global Inc (NYSE:SPGI) is owned by Chris Hohn’s TCI Fund Management, worth about $3.8 billion.
Here is what Baron FinTech Fund has to say about S&P Global Inc. (NYSE:SPGI) in its Q3 2023 investor letter:
“Shares of rating agency and data provider S&P Global Inc. gave back some gains from earlier this year due to investor concerns that rising interest rates will weigh on future debt issuance and asset-based fees. Management also removed its 2026 revenue target for the ESG segment due to a more uncertain regulatory landscape and political climate. On a positive note, S&P Global reported strong second quarter financial results, with 7% adjusted revenue growth and 11% EPS growth as ratings issuance returned to growth for the first time in six quarters. Management maintained fullyear guidance as a more favorable outlook for the Ratings and Indices segments offset slower growth in the Market Intelligence segment. We continue to own the stock due to the company’s long runway for growth and significant competitive advantages.”
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