In this article, we discuss 10 best dividend growth stocks to buy now. You can skip our detailed analysis of dividend growth stocks and their returns in the past, and go directly to read 5 Best Dividend Growth Stocks to Buy Now.
In times of market volatility, investors often turn to dividend growth stocks to ensure regular income. Dividend growth investing involves buying shares of companies that hold solid records of increasing their payouts over time. In addition to this, these high-quality companies have strong cash flow generation, which supports their dividend payments and also indicates further dividend growth.
As the current economic crisis has sent stock markets into a tailspin, investors around the world are holding onto strong dividend companies. The historical analysis of dividend growers has shown their outperformance in periods of market turbulence. According to a report by T. Rowe Price, dividend stocks in Russell 1000 outplayed the benchmark during down and flat markets from 1985 to December 2020. During down markets, Russell 1000 fell by 18%, whereas dividend growers declined by 12.1% in comparison.
Analysts are also supporting dividend investments this year as the market moves towards uncertainty. Nuveen’s Chief Investment Officer Saira Malik talked about opportunities in dividend stocks in her interview with CNBC this July. She said that investors should look for companies with pricing power and resilience. She further said that as dividend growers have strong balance sheets, they tend to do well during periods of higher inflation and higher interest rates. Similarly, Todd Rosenbluth of VettaFi also emphasized the importance of dividend growers in his interview with the same media channel in September. He asserted that companies that grow their dividends are most likely to keep up with the changing market conditions. Dividend stocks that are popular among investors include The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and Johnson & Johnson (NYSE:JNJ) due to their dividend growth histories and sound financials.
The returns of dividend growers this year have been phenomenal, surpassing other asset classes so far. MSCI World Dividend Growers Quality Select tracks the performance of 80 stocks across 23 developed markets that have consistently raised their dividends. The index returned -0.70% this year as of August 2022, compared with an 8.06% drop of MSCI World during the same period. Further evaluating the above-mentioned arguments, we will discuss the best dividend growth stocks to buy now.
Our Methodology:
For this list, we selected stocks that have raised their dividends for at least five years. We also analyzed these stocks through their five-year average dividend growth rate. In addition to this, these companies have solid cash flow positions to weather market storms like the one we are confronted with today.
10. Houlihan Lokey, Inc. (NYSE:HLI)
Years of Consistent Dividend Growth: 5
5-Year Compound Average Dividend Growth Rate: 20.05%
Houlihan Lokey, Inc. (NYSE:HLI) is a California-based multinational independent investment banking and financial services company. In July, Morgan Stanley upgraded the stock to Equal Weight with an $82 price target, as the company’s multiple has held up better than its peers during recessionary periods. In addition to this, the firm also appreciated the company’s Financial and Advisory segment.
At the end of June 2022, Houlihan Lokey, Inc. (NYSE:HLI) reported over $525 million in cash and cash equivalents and $53 million of other liabilities. In fiscal Q1 2023, the company reported revenue of $419 million, which showed a 12.4% year-over-year growth. Its net income for the quarter jumped to $70.7 million, from $65.1 million in the previous quarter.
Houlihan Lokey, Inc. (NYSE:HLI) currently pays a quarterly dividend of $0.53 per share, with a dividend yield of 2.76%, as recorded on September 25. The company has been raising its dividends consistently for five years and has raised its payouts at a CAGR of 20.05% during this period.
At the end of Q2 2022, 18 hedge funds tracked by Insider Monkey owned stakes in Houlihan Lokey, Inc. (NYSE:HLI), down from 22 in the previous quarter. These stakes hold a collective value of roughly $100 million. Among these hedge funds, Ancora Advisors was the company’s leading stakeholder in Q2.
In addition to popular dividend stocks like The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and Johnson & Johnson (NYSE:JNJ), Houlihan Lokey, Inc. (NYSE:HLI) can be added to diversified dividend portfolios.
Baron Funds mentioned Houlihan Lokey, Inc. (NYSE:HLI) in its Q4 2021 investor letter. Here is what the firm has to say:
“Another standout in Capital Markets was advisory firm Houlihan Lokey, Inc., which nearly doubled revenues in the most recent quarter and completed a large, accretive acquisition of another advisory firm that significantly expands its global presence.”
9. Tetra Tech, Inc. (NASDAQ:TTEK)
Years of Consistent Dividend Growth: 7
5-Year Compound Average Dividend Growth Rate: 17.75%
Tetra Tech, Inc. (NASDAQ:TTEK) is an American consulting and engineering services firm that provides program management and construction management services in clean energy. The company has a 7-year run of raising its dividends consistently. In the past five years, it has raised its payouts at a CAGR of 17.75%, which makes it one of the most prominent dividend growth stocks. The company currently pays a dividend of $0.23 per share and has a dividend yield of 0.72%, as of September 25.
In fiscal Q3 2022, Tetra Tech, Inc. (NASDAQ:TTEK) reported strong cash generation as its operating cash flow came in at $98 million, up 42% from the same period last year. The company’s free cash flow stood at $95.6 million, compared with $91 million in the previous quarter. In the first nine months of its fiscal year, it returned $184 million to shareholders through dividends and share repurchases. The company’s solid cash flow signals future dividend stability.
In July, Northcoast started its coverage of Tetra Tech, Inc. (NASDAQ:TTEK) with a Neutral rating, as the firm initiated the water infrastructure space. The firm mentioned that demand for clean energy names is promising as compared to construction and municipal sectors.
The number of hedge funds tracked by Insider Monkey owning stakes in Tetra Tech, Inc. (NASDAQ:TTEK) stood at 29 in Q2 2022, growing from 21 in the previous quarter. These stakes hold a combined value of over $253.7 million.
8. JPMorgan Chase & Co. (NYSE:JPM)
Years of Consistent Dividend Growth: 7
5-Year Compound Average Dividend Growth Rate: 15.33%
JPMorgan Chase & Co. (NYSE:JPM) is another company on our list of the best dividend growth stocks to buy now. The American financial services company reported a 7% growth in its loans in Q2 2022 while its average deposits grew by 9% from the preceding quarter. The company generated over $66 billion in operating cash flow, which shows that its dividend payments are safe for the future.
JPMorgan Chase & Co. (NYSE:JPM) has been raising its dividends consistently for the past seven years. The company’s 5-year dividend CAGR stands at 15.33%. On September 20, it announced a quarterly dividend of $1.00 per share, in line with its previous dividend. The stock has a dividend yield of 3.67%, as of September 25.
In September, Deutsche Bank maintained its Buy rating on JPMorgan Chase & Co. (NYSE:JPM) with a $155 price target, presenting a positive stance on the banking sector in the current economic landscape.
Ken Fisher’s Fisher Asset Management had nearly $900 million worth of shares in JPMorgan Chase & Co. (NYSE:JPM) and was the company’s leading stakeholder in Q2 2022. Overall, 104 hedge funds in Insider Monkey’s database owned stakes in the banking company in Q2, down from 110 in the previous quarter. These stakes hold a total value of over $5.8 billion.
7. First American Financial Corporation (NYSE:FAF)
Years of Consistent Dividend Growth: 11
5-Year Compound Average Dividend Growth Rate: 8.4%
First American Financial Corporation (NYSE:FAF) is a California-based financial services company that provides services related to insurance and settlement to mortgage and real estate industries. The company was a part of 30 hedge fund portfolios in Q2 2022, compared with 31 in the previous quarter, according to Insider Monkey’s data. The stakes owned by these hedge funds are collectively worth over $1.09 billion.
In July, Truist reiterated its Buy rating on First American Financial Corporation (NYSE:FAF) with a $77 price target. The firm appreciated the company’s Q2 earnings and its weekly applications and rate lock data.
In Q2 2022, First American Financial Corporation (NYSE:FAF) reported $191 million in operating cash flow, up from $40 million in the previous quarter. The company’s free cash flow came in at $114 million. At the end of June, it had $1.74 billion in cash and cash equivalents and its total assets amounted to over $16.2 billion.
On August 4, First American Financial Corporation (NYSE:FAF) hiked its quarterly dividend by 2% to $0.52 per share. This marked the company’s 11th consecutive year of dividend growth. As of September 25, the stock has a dividend yield of 4.43%.
6. Packaging Corporation of America (NYSE:PKG)
Years of Consistent Dividend Growth: 11
5-Year Compound Average Dividend Growth Rate: 14.7%
Packaging Corporation of America (NYSE:PKG) is an Illinois-based manufacturing company that produces corrugated packaging products and uncoated free sheets in North America. In Q2 2022, the company generated nearly $320 million in operating cash flow, down from $325.3 million in the previous quarter. However, its free cash flow grew to $134.7 million, from $112 million a quarter earlier. The company’s revenue stood at $2.24 billion, up 19.1% from the same period last year.
In July, Wells Fargo mentioned Packaging Corporation of America (NYSE:PKG) in its investors’ note and highlighted the company’s solid execution and pricing initiatives. The firm also expects the demand for its products to remain strong post-pandemic. The firm maintained an Equal Weight rating on the stock.
On September 21, Packaging Corporation of America (NYSE:PKG) announced a quarterly dividend of $1.25 per share, consistent with its previous dividend. The company has been raising its dividends for the past 11 years consecutively, with a five-year CAGR of 14.7%. In addition to this, it has a healthy payout ratio of 35%. As of September 25, the stock’s dividend yield came in at 4.39%. The company’s dividend growth streak makes it favorable among investors alongside famous dividend stocks like The Coca-Cola Company (NYSE:KO), The Procter & Gamble Company (NYSE:PG), and Johnson & Johnson (NYSE:JNJ).
At the end of June 2022, 26 hedge funds in Insider Monkey’s database owned stakes in Packaging Corporation of America (NYSE:PKG), up from 25 a quarter earlier. These stakes have a consolidated value of over $247 million. Jim Simons, Cliff Asness, and Israel Englander were some of the company’s most prominent stakeholders in Q2.
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Disclosure. None. 10 Best Dividend Growth Stocks to Buy Now is originally published on Insider Monkey.
