In this article, we discuss 10 best dividend stocks for steady growth. You can skip our detailed analysis of dividend investing and past returns of dividend stocks, and go directly to read 5 Best Dividend Stocks for Steady Growth.
Amid rising interest rates and higher inflation, investors are gravitating toward dividend stocks to generate stable income. Over the past years, companies in the US are steadily raising their dividends to send a positive signal to analysts and investors. According to a research paper published by Cass Business School, 59.1% of US companies raised their dividends over the period 2000 to 2012. The paper further mentioned that 81% of the S&P 500 companies paid dividends in 2012 and 68% of them increased their payouts that year.
This year, dividend stocks are again in demand as inflation in the US reached its 40-year high. Dividend stocks have historically proved to be inflation-fighting investments as these securities have outperformed other asset classes. Since 2000, the S&P 500 dividend growth has outpaced inflation, reported WSJ. The report also mentioned, citing S&P Dow Jones Indices and Bureau of Economic Analysis data, that dividends now represent 7.3% of personal income, compared with 3.2% in 1980. Dividend companies that continuously raise their payouts are on investors’ radars as they help them grow their income over time. Some of the best dividend stocks in this context are The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG). These companies have not only raised their dividends for decades but are also outperforming the broader index this year.
Dividend growers have dominated the overall market return since 1994. According to a report by ClearBridge Investments, dividend growers delivered an annual average return of 11.1% in a 12-month period starting after the rate hikes in 1994 to Q3 2022, compared with a 9.2% return of the S&P 500.
Our Methodology:
For this list, we selected dividend growers with strong balance sheets and solid financial health. We analyzed these stocks through their five-year compound average dividend growth rates to determine the stability of their payouts and growth prospects.
10 Best Dividend Stocks for Steady Growth
10. American Express Company (NYSE:AXP)
Dividend Yield as of October 4: 1.43%
5-Year Compound Average Dividend Growth Rate: 8.22%
American Express Company (NYSE:AXP) is an American multinational credit card services company that also provides other banking services to its consumers. In July, Citigroup raised its price target on the stock to $159 with a Neutral rating on the shares, following the company’s Q2 results. The firm mentioned that the company’s strong sales were driven by a faster recovery in its international business.
In Q2 2022, American Express Company (NYSE:AXP) reported revenue of $13.4 billion, up from $10.2 billion during the same period last year. The company’s cash position also remained strong, with $4.2 billion in operating cash flow, up from $3.8 billion in the previous quarter. Its free cash flow stood at $3.8 billion, compared with $3.4 billion a quarter earlier.
American Express Company (NYSE:AXP) has been making consistent dividend payments for the past 30 years, coming through as one of the best dividend stocks to buy now. On September 28, the company declared a quarterly dividend of $0.52 per share and has a dividend yield of 1.43%, as of October 4. In the past five years, the company raised its dividends at a CAGR of 8.22%.
At the end of Q2 2022, 67 hedge funds tracked by Insider Monkey owned stakes in American Express Company (NYSE:AXP), compared with 69 a quarter earlier. These stakes have a consolidated value of over $25.2 billion. Warren Buffett’s Berkshire Hathaway was the company’s leading stakeholder in Q2.
In addition to popular dividend stocks like The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG), American Express Company (NYSE:AXP) is also a valuable addition to dividend portfolios.
9. Cigna Corporation (NYSE:CI)
Dividend Yield as of October 4: 1.54%
5-Year Compound Average Dividend Growth Rate: 151.2%
Cigna Corporation (NYSE:CI) is a Connecticut-based insurance company that provides healthcare insurance services to its consumers. The company currently pays a quarterly dividend of $1.12 per share, with a dividend yield of 1.54%, as of October 4. The company has been raising its dividends consistently for the past 2 years. Moreover, it has a five-year dividend CAGR of 151.2%, which makes it one of the best dividend stocks on this list.
In Q2 2022, Cigna Corporation (NYSE:CI) reported a 3% growth in its total customer relationship. Its free cash flow generation also remained strong at $920 million. The company’s operating cash flow stood at over $1.24 billion. Recently, the company launched Cigna Pathwell, a suite of products to connect customers with quality care providers.
In August, UBS lifted its price target on Cigna Corporation (NYSE:CI) to $330 with a Buy rating on the shares. The firm appreciated the company’s outperformance over its peers in recent quarterly earnings and its reduced medical loss ratio forecast for 2022.
The number of hedge funds tracked by Insider Monkey owning stakes in Cigna Corporation (NYSE:CI) grew to 66 in Q2 2022, from 63 in the previous quarter. The collective value of these stakes is over roughly $3.2 billion, compared with $2.7 billion worth of stakes owned by hedge funds in the preceding quarter.
Davis Funds mentioned Cigna Corporation (NYSE:CI) in its Q4 2021 investor letter. Here is what the firm has to say:
“Healthcare is included in the portfolio both for company-specific reasons, as well as big picture trends. At the company level, we hold select companies in pharmaceuticals, healthcare services and health insurance at attractive valuations. This is at a time when the average age of the U.S. population is fast approaching 40, older than Asia-Pacific and a little younger than the aged populations of Europe and Japan. The number of seniors in the U.S.—i.e., 65 years or older— now surpasses 54 million, or about 15% of the population. Seniors, on average, take a much greater number of medications and account for a large and disproportionate share of healthcare spending, and we expect that trend to continue due to both raw demographics and a proliferation in the number of available treatments and services available now, the latter being driven by innovation and investment in the healthcare industry. Representative holdings in the Fund include Cigna, United Health Group, Viatris and Quest Diagnostics.”
8. Lennar Corporation (NYSE:LEN)
Dividend Yield as of October 4: 1.86%
5-Year Compound Average Dividend Growth Rate: 44.3%
Lennar Corporation (NYSE:LEN) is a Florida-based home construction company and is the leading homebuilder of new homes for sale. In fiscal Q3 2022, the company reported an operating cash flow of $124.8 million and its free cash flow for the quarter came in at $120 million. Its deliveries during the quarter increased by 13% to 17,248 homes.
On September 28, Lennar Corporation (NYSE:LEN) declared a quarterly dividend of $0.375 per share, consistent with its previous dividend. In the past five years, the company raised its payouts at a CAGR of 44.3%. As of October 4, the stock’s dividend yield came in at 1.86%.
In September, Raymond James raised its price target on Lennar Corporation (NYSE:LEN) to $90 with an Outperform rating on the shares. The firm appreciated the company’s performance in fiscal Q3 and its outperformance versus the S&P 500 since the start of the year.
At the end of June 2022, 47 hedge funds tracked by Insider Monkey owned stakes in Lennar Corporation (NYSE:LEN), down from 50 a quarter earlier. These stakes hold a collective value of over $1.6 billion. Greenhaven Associates was the company’s leading stakeholder in Q2, owning over 9 million shares.
7. McDonald’s Corporation (NYSE:MCD)
Dividend Yield as of October 4: 2.30%
5-Year Compound Average Dividend Growth Rate: 7.98%
McDonald’s Corporation (NYSE:MCD) is an American multinational fast food chain and is the leading global food service retailer. In September, Stephens initiated its coverage on the stock with an Overweight rating and a $280 price target. The firm mentioned that the company has continued to introduce attractive value offerings on its menu, which would be an important driver of its same-store sales.
McDonald’s Corporation (NYSE:MCD) holds one of the longest dividend growth track records in the market, having raised its dividends for the past 45 years consistently. The company has raised its payouts at a five-year CAGR of 7.98%, which makes it one of the best dividend stocks for steady growth. As of October 4, the stock’s dividend yield came in at 2.30%.
In Q2 2022, McDonald’s Corporation (NYSE:MCD) reported a 9.7% growth in global comparable sales and a 3.7% growth in its US comparable sales. The company’s digital systemwide sales exceeded $6 billion for the quarter and its systemwide sales grew by 4%. In addition to this, it generated $618 million in operating cash flow and $180.2 million in free cash flow during the quarter.
At the end of Q2 2022, 50 hedge funds tracked by Insider Monkey owned stakes in McDonald’s Corporation (NYSE:MCD), compared with 58 in the previous quarter. The consolidated value of these stakes is over $2.3 billion.
6. American Tower Corporation (NYSE:AMT)
Dividend Yield as of October 4: 2.63%
5-Year Compound Average Dividend Growth Rate: 11.04%
American Tower Corporation (NYSE:AMT) is a Boston-based real estate investment trust company that owns and operates properties related to communications infrastructure. On September 22, the company announced a 3% hike in its quarterly dividend to $1.47 per share. This was the company’s 11th consecutive year of dividend growth. As of October 4, the company’s shares boast a yield of 2.63%. It is one of the best dividend stocks to buy now along side The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and The Procter & Gamble Company (NYSE:PG).
In October, KeyBanc maintained its Overweight rating on American Tower Corporation (NYSE:AMT) with a $264 price target. The firm presented a constructive outlook on the sector as leasing trends remain strong in the US.
At the end of June 2022, 52 hedge funds tracked by Insider Monkey owned stakes in American Tower Corporation (NYSE:AMT), up from 50 in the previous quarter. These stakes are valued at over $4.37 billion. Charles Akre and Ken Fisher were the company’s most prominent stakeholders in Q2.
Baron Funds mentioned American Tower Corporation (NYSE:AMT) in its Q2 2022 investor letter. Here is what the firm has to say:
“American Tower is a leading global tower company with 220,000 communication sites globally and over 40,000 in the U.S. We added to our position during the market dislocation and as it became increasingly clear that the company would put permanent equity financing in place at better-than-expected terms for its previously announced acquisition of CoreSite (thereby removing the “equity overhang”).
In addition, the company stepped back from a large potential deal in Europe, which would have required significant incremental funding, due to unfavorable contract terms and price. This decision further reinforced our confidence in management’s capital allocation discipline knowing that these were highly sought-after assets.”
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Disclosure. None. 10 Best Dividend Stocks for Steady Growth is originally published on Insider Monkey.
