In this article, we will take a look at some of the best GARP stocks that pay dividends.
Over the past year, the market has highlighted the importance of diversifying portfolios to manage risk. Selecting stocks that perform well under various economic conditions has consistently been a challenge for investors, as strategies that work in one market may not work in another. For instance, growth and value stocks have shown different performance trends in various market conditions, making both approaches appealing to investors. Combining elements of both strategies can provide a refreshing alternative to traditional investment plans. This is where the GARP strategy comes into play. Growth at a Reasonable Price (GARP) is an investment strategy that focuses on finding companies with strong, sustainable earnings growth and appealing valuations in relation to their growth potential. These companies are often in sectors with positive growth trends or have competitive advantages that position them for future success.
The GARP strategy, popularized by Peter Lynch, aims to strike a balance between growth and value investing by avoiding the extremes of either approach. It focuses on finding growth stocks that have relatively low price-to-earnings ratios under typical market conditions. When these stocks are identified successfully, they can offer strong returns for investors. Historically, the GARP Index has outperformed its benchmark by tracking companies that demonstrate consistent fundamental growth, reasonable valuations, and strong earnings potential.
Also read: 10 Cheapest Dividend Aristocrats to Buy Now
The strategy has gained popularity not just in the US, but also globally. After Global X launched the first global broad-based index exchange-traded fund (ETF) in Australia using the GARP framework in September 2024, the strategy delivered strong early-stage performance. According to a Global X report, while global equity markets experienced a rally towards the end of 2024, the GARP stocks outperformed the broader market and other factors like quality, rising approximately 20% since the ETF’s launch. The report also noted that GARP’s success wasn’t driven by technology, but rather by broader sectors such as consumer goods, financials, and communication.
Analysts globally are also advocating for the GARP strategy. For instance, Brian Belski, chief strategist at BMO Capital, recommended that Canadian investors adopt the GARP approach this year. Here are some comments from the analyst:
“Growth at a Reasonable Price (GARP) remains one of our key style preferences for Canadian equities. Furthermore, earnings growth and revision trends are broadly consistent with the market, suggesting there are likely many opportunities developing in Canada to implement a growth at a reasonable price strategy.”
In the US, a report from S&P Dow Jones Indices revealed that the GARP Index delivered an average annual return of 13.2% from June 1995 to June 2019, outperforming the broader market’s 9.81% growth. Over the same period, the market’s Growth Index and the Enhanced Value Index returned 10.41% and 11.83%, respectively. The report also highlighted that the GARP Index achieved better risk-adjusted returns compared to both the growth and value indices during this time frame.
A CNBC report also highlighted insights from BMO’s analysts regarding investment strategies to navigate market uncertainties in the U.S. According to the report, investors should consider the GARP approach alongside dividend growth strategies in the current financial landscape. Dividend stocks have historically performed well during inflationary periods, making them a favored choice among investors. Given this, we will take a look at some of the best GARP stocks that pay dividends.
Photo by Karolina Grabowska: https://www.pexels.com/photo/hands-holding-us-dollar-bills-4968630/
Our Methodology:
GARP stocks have reasonable valuations and strong growth potential, which means that their P/E ratios are not necessarily as low as value stocks. For this article, we used the GARP Index (SPXGARPP) and identified dividend stocks from the list. From that group, we picked 10 dividend companies with the highest number of hedge fund investors, according to Insider Monkey’s database of Q3 2024. These stocks were ranked based on the number of hedge funds having stakes in them.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).
10. Archer-Daniels-Midland Company (NYSE:ADM)
Number of Hedge Fund Holders: 34
Archer-Daniels-Midland Company (NYSE:ADM) is an American multinational food processing and commodities trading company, based in Illinois. The company cultivates a diverse range of crops, such as soybeans, corn, and wheat. It is also actively involved in innovation, having played a role in the creation or advancement of products like textured vegetable protein, high-fructose corn syrup, ethanol, and Omega-3 fatty acids.
Archer-Daniels-Midland Company (NYSE:ADM) fell short of investor expectations in the fourth quarter of 2024. As a commodity-driven business, ADM’s performance is heavily influenced by market prices, leading to fluctuations beyond its control. Due to the nature of its operations, the company operates with thin gross margins, which resulted in a 22% decline in gross profit to $1.36 billion. In addition, its gross margin dropped from 7.6% to 6.3%. However, revenue reached $21.5 billion, reflecting a 6.4% increase from the same quarter last year. GAAP earnings per share came in at $1.17, marking a 10% rise year over year.
In addition, Archer-Daniels-Midland Company (NYSE:ADM)’s cash position provided some reassurance to concerned investors. By the end of 2024, the company had $611 million in cash and cash equivalents. Over the year, it generated $2.8 billion in cash flows from operating activities, with operating cash flow before working capital adjustments totaling $3.3 billion. On February 4, the company announced a 2% increase in its quarterly dividend to $0.51 per share, marking its 52nd consecutive year of dividend growth. Moreover, it has maintained an uninterrupted dividend payout for 93 years, which makes ADM one of the best GARP stocks on our list. The stock has a dividend yield of 4.44%, as of February 14.
9. Diamondback Energy, Inc. (NASDAQ:FANG)
Number of Hedge Fund Holders: 49
Diamondback Energy, Inc. (NASDAQ:FANG) is a Texas-based independent energy company that is engaged in the exploration of hydrocarbons. The company finalized its merger with Endeavor Energy Resources last year, establishing itself as a key operator in the Permian Basin, a region responsible for nearly 40% of US oil production and 15% of the country’s natural gas output.
Following its $26 billion acquisition of Endeavor Energy Resources, the company has taken steps to improve its balance sheet and lower debt. It recently disclosed that it has finalized an agreement to sell specific mineral and royalty interests to its subsidiary, Viper Energy, in a deal valued at $4.45 billion.
Diamondback Energy, Inc. (NASDAQ:FANG) maintains a solid cash position. In the most recent quarter, the company generated $1.2 billion in operating cash flow and reported a free cash flow of $780 million. During this period, it returned $708 million to shareholders through dividends, accounting for roughly 78% of its Adjusted Free Cash Flow. The company follows a strategy of returning at least half of its free cash flow to investors. It remains committed to steadily increasing its dividend, which has grown at an average quarterly rate of 8% since its launch in 2018, outpacing industry peers. In addition, the company plans to repurchase shares and, if surplus cash is available, distribute a variable dividend to shareholders.
Diamondback Energy, Inc. (NASDAQ:FANG), one of the best GARP stocks, currently offers a quarterly dividend of $0.90 per share for a dividend yield of 5.28%, as of February 14. The company initiated its dividend policy in 2018 and has paid regular dividends to shareholders since then.
8. Caterpillar Inc. (NYSE:CAT)
Number of Hedge Fund Holders: 50
An American manufacturing company, Caterpillar Inc. (NYSE:CAT) specializes in construction, mining, and other engineering equipment. Analysts have an optimistic outlook for the company, given that the global market for backup power solutions in AI data centers could reach nearly $23 billion by 2028. In a research note from December, Jefferies highlighted several key factors supporting Caterpillar’s growth prospects. The firm pointed to a potential increase in demand for construction equipment, particularly for rebuilding efforts in war-affected regions like Ukraine. In addition, expectations of eased oil production regulations in the US could drive higher demand for construction machinery within the domestic oil and gas sector. At the same time, Jefferies anticipates a rise in demand for mining equipment due to the growing need for minerals essential to renewable energy production.
In the past 12 months, Caterpillar Inc. (NYSE:CAT) has delivered over 11.5% return to shareholders. In the fourth quarter of 2024, the company posted revenue of $16.2 billion, reflecting a 5% decline from the same period a year earlier. The decrease was largely driven by an $859 million drop in sales volume, mainly due to shifts in dealer inventories and lower equipment sales to end users. Dealer inventory levels decreased by $1.3 billion during the quarter, a steeper decline compared to the $900 million reduction in the fourth quarter of 2023. Meanwhile, the company’s profit per share rose to $5.78, up from $5.28 in the same period last year.
Caterpillar Inc. (NYSE:CAT) maintained a solid financial position in 2024. The company generated $12.0 billion in operating cash flow throughout the year and ended the fourth quarter with $6.9 billion in cash. Over the year, it allocated $7.7 billion toward share repurchases and distributed $2.6 billion in dividends to shareholders. The company’s quarterly dividend comes in at $1.41 per share for a dividend yield of 1.6%, as of February 14. It is one of the best GARP dividend stocks on our list as the company has raised its payouts for 30 years straight.
7. Chubb Limited (NYSE:CB)
Number of Hedge Fund Holders: 51
Chubb Limited (NYSE:CB) ranks seventh on our list of the best GARP stocks that pay dividends. The multinational insurance company offers a wide range of insurance products, including property and casualty, life insurance, and reinsurance.
Chubb Limited (NYSE:CB) has delivered consistent growth over the years. Between 2016 and 2023, the company achieved a compound annual growth rate (CAGR) of 7% in revenue, while its earnings per share grew at a CAGR of 14%. This steady expansion persisted despite challenges such as the pandemic, geopolitical tensions, inflation, and rising interest rates that disrupted the broader economy. A key factor behind this resilience is that most customers are unlikely to cancel their insurance policies just to cut costs. While economic downturns can temporarily limit pricing power, leading insurers are typically able to withstand such short-term pressures.
That said, Chubb Limited (NYSE:CB) is experiencing a setback due to recent wildfire losses, which are expected to reduce free cash flow by $1.5 billion. However, it has a strong track record of handling significant losses, including those from Hurricane Ian and Hurricane Milton, demonstrating its ability to effectively manage such challenges.
In addition, Chubb Limited (NYSE:CB) has a solid cash position, generating $4.57 billion in operating cash flow. The company also returned about $1.1 billion to shareholders through dividends and share repurchases. It stands out as one of the top dividend stocks, having consistently increased its payouts for 31 consecutive years. Currently, it pays a quarterly dividend of $0.91 per share and has a dividend yield of 1.38%, as of February 14.
6. Lowe’s Companies, Inc. (NYSE:LOW)
Number of Hedge Fund Holders: 60
Lowe’s Companies, Inc. (NYSE:LOW) is a North Carolina-based home improvement company. It provides a broad selection of related products and services, including hardware, tools, appliances, building materials, paint, plumbing supplies, and garden equipment. In January, the company announced that project nominations are now open for Lowe’s Hometowns, a five-year initiative backed by a $100 million commitment to community revitalization. This year, the company plans to invest $10 million to fund 100 renovation projects and support an additional 1,700 projects selected by its employees. In addition, Lowe’s has committed $2 million to assist with relief and recovery efforts for the Southern California wildfires, reinforcing its dedication to supporting communities in times of crisis.
Lowe’s Companies, Inc. (NYSE:LOW) is a strong dividend payer. Over the past five years, the company has increased its dividend at an average annual rate of more than 16%. Additionally, the company has maintained a steady track record of dividend growth for 59 consecutive years, making it one of the best GARP stocks on our list. The company pays a quarterly dividend of $1.15 per share and has a dividend yield of 1.83%, as of February 14.
Lowe’s Companies, Inc. (NYSE:LOW) benefits from three major factors that support its business. These include rising home prices, personal income growth outpacing inflation, and the fact that the average age of homes in the U.S. has reached an all-time high. These trends are expected to sustain strong demand for the company’s products, as homeowners are likely to continue investing in home renovations and repairs over time.
5. American Express Company (NYSE:AXP)
Number of Hedge Fund Holders: 62
American Express Company (NYSE:AXP) is an American bank holding company that offers a wide range of related services to its consumers. Analysts believe this is a well-managed business that is performing strongly at present. A key factor in its success is its emphasis on higher-income customers, who tend to spend more. This strategy also provides an advantage during economic downturns, as wealthier consumers are typically more resilient during recessions. In the past 12 months, the stock has surged by over 47%, which makes it one of the best GARP stocks.
In October 2024, American Express Company (NYSE:AXP) acquired UBS’s 50% stake in Swisscard, securing full ownership of the credit card provider. This acquisition strengthened American Express’s position in the Swiss market while integrating Credit Suisse customers into its credit card services. With its strong competitive advantages, the company has built a resilient model that offers protection against inflation, a factor that has become even more evident as it continues to grow.
In the fourth quarter of 2024, American Express Company (NYSE:AXP) reported revenue of over $17 billion, marking a 9% increase from the same period the previous year. The company’s net income exceeded $2.1 billion, reflecting a 12% year-over-year rise. It has established itself as a reliable dividend payer, having increased its payouts six times in the last three years. Moreover, over the past five years, the company has grown its dividends at an average annual rate of more than 11%. It currently offers a quarterly dividend of $0.82 per share and has a dividend yield of 0.90%, as of February 14.
4. ConocoPhillips (NYSE:COP)
Number of Hedge Fund Holders: 66
ConocoPhillips (NYSE:COP) is a multinational energy company, headquartered in Texas. The company is engaged in hydrocarbon exploration and production. It experienced strong production growth in the fourth quarter of 2024, with output increasing 14.8% year-over-year to 2,183 thousand barrels of oil equivalent per day (MBOED). This expansion was largely fueled by strategic acquisitions, including the completion of its Marathon Oil purchase in November 2024. The company also maintained a solid cash position, generating $20.1 billion in operating cash flow for fiscal year 2024, while total cash from operations reached $20.3 billion.
ConocoPhillips (NYSE:COP) returned $3.6 billion to shareholders through dividend payments. The company currently pays a quarterly dividend of $0.78 per share, following a 34% increase in October. This latest hike continues its streak of 10 consecutive years of dividend growth, which places it on our list of the best GARP stocks that pay dividends. The company offers a per-share dividend of $0.78 every quarter and has a dividend yield of 3.24%, as of February 14.
ConocoPhillips (NYSE:COP) has recently prioritized enhancing operational efficiency and expanding its LNG operations. Its success has been driven by strict cost management, seamless integration of acquisitions, and advancements in low-carbon technologies. Committed to lowering its carbon footprint, the company was awarded the Oil and Gas Methane Partnership 2.0 Gold Standard in 2024.
3. Exxon Mobil Corporation (NYSE:XOM)
Number of Hedge Fund Holders: 86
An American oil and gas company, Exxon Mobil Corporation (NYSE:XOM) ranks third on our list of the best GARP stocks that pay dividends. The company continues to be a key player in the global fossil fuel industry while accelerating its investments in low-carbon energy. As part of its 2030 strategy, it plans to allocate up to $30 billion toward low-emission projects between 2025 and 2030. Moreover, it has partnered with the Texas General Land Office to secure the largest offshore carbon dioxide storage site in the US. The company is also making strides in developing the world’s largest low-carbon hydrogen production facility, which is projected to generate up to 1 billion cubic feet of hydrogen per day. In the past 12 months, the stock has surged by over 7%.
In the fourth quarter of 2024, Exxon Mobil Corporation (NYSE:XOM) reported revenue of $83.4 billion, marking a 1.1% decline from the same quarter the previous year. Since 2019, it has achieved $12.1 billion in Structural Cost Savings, outperforming its competitors and more than offsetting the effects of inflation and growth. The company’s return on capital employed for the year was the highest in its industry at 12.7%, with a five-year average of 10.8%.
Exxon Mobil Corporation (NYSE:XOM) showcased a strong cash position in FY24, generating $55 billion in free cash flow, its third-highest result in the past decade. The total free cash flow for the year amounted to $36.2 billion. The company returned $16.7 billion to shareholders through dividends and plans to maintain its $20 billion annual share repurchase program through 2026. Furthermore, it has been consistently increasing its dividends for the past 42 years. The company’s quarterly dividend comes in at $0.99 per share for a dividend yield of 3.66%, as of February 14.
2. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Holders: 131
Mastercard Incorporated (NYSE:MA) is an American credit card company that offers a wide range of payment processing and related services to its consumers. The company posted strong earnings in the fourth quarter of 2024, prompting Raymond James to maintain an Outperform rating on the stock and raise its price target from $614 to $640. The firm highlighted MasterCard’s consistent performance, noting that while initial guidance may lead to lower projections, this is primarily due to changes in foreign exchange rates and transaction-related operating costs.
In the fourth quarter of 2024, Mastercard Incorporated (NYSE:MA) generated revenue of $7.5 billion, a 14% increase compared to the same quarter last year. The company’s net income for the quarter was $3.5 billion, up from $3 billion in the previous year. By December 31, 2024, a total of 3.5 billion Mastercard and Maestro-branded cards had been issued to customers.
Mastercard Incorporated (NYSE:MA) ended the quarter with a solid cash position, holding over $8.4 billion in cash and cash equivalents, while total assets surpassed $19.7 billion. In fiscal year 2024, the company generated $14.7 billion in operating cash flow, up from $12 billion in 2023. This financial strength allowed it to return $2.4 billion to shareholders through dividends over the year. With 13 years of consecutive dividend growth, MA is considered one of the best GARP stocks that pay dividends. Currently, it pays a quarterly dividend of $0.76 per share and has a dividend yield of 0.54%, as of February 14.
1. Visa Inc. (NYSE:V)
Number of Hedge Fund Holders: 165
Visa Inc. (NYSE:V) is a California-based payment card service company that offers a wide range of related services and products to its consumers. The company reported strong earnings for fiscal Q1 2025. The company achieved revenue of $9.5 billion, a 10% increase from the previous year. For the quarter ending December 31, 2024, Visa processed 63.8 billion transactions, marking an 11% year-over-year rise. Moreover, payment volume increased by 9% on a constant-dollar basis compared to the same period last year.
Despite ongoing discussions about the potential impact of fintech and alternative payment methods, Visa Inc. (NYSE:V)’s competitive edge has only strengthened over time. The company benefits from its vast scale and an inflation-resistant business model. Its performance reflects solid business fundamentals, having achieved a total return compound annual growth rate (CAGR) of 21.6% since going public in 2008.
Visa Inc. (NYSE:V) ended the quarter with a robust cash position, with over $16 billion in cash and cash equivalents. Operating cash flow increased to $5.4 billion, up from $3.6 billion in the same quarter last year. The company also returned $5.1 billion to shareholders through dividends and share repurchases. It currently pays a quarterly dividend of $0.59 per share and has a dividend yield of 0.67%, as of February 14. The company has been rewarding shareholders with growing dividends for the past 16 years.
Overall Visa Inc. (NYSE:V) ranks first on our list of the best GARP stocks that pay dividends. While we acknowledge the potential for V as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than V but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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