In this article, we will analyze the list of the best dividend stocks for steady growth.
It’s well understood how crucial dividend growth stocks are for investors. Although dividend stocks have been moving at a slow pace recently, largely due to the AI stock boom, their long-term value remains undeniable. Investors appear to be increasingly drawn to dividend growth strategies, recognizing that the focus should now be on growth rather than just yield. The Dividend Aristocrat Index stands out as a strong investment opportunity, offering an average yield of about 2.4%, trading at roughly 23 times earnings, and projected to achieve an average annual earnings growth of 7% over the coming years.
Also read: 10 Best Dividend Aristocrats According to Wall Street Analysts
During the second quarter, US equity markets saw gains, driven by ongoing excitement around artificial intelligence technology, which led to a notable rise in growth stocks. Analysts believe that dividend-paying equities, supported by strong fundamentals, sustainable growth prospects, and solid balance sheets, are well-positioned to benefit from continued economic growth. The current market environment has somehow blurred the line between tech and dividend stocks, especially as major tech companies have introduced dividend policies this year. Whether these companies can continue to raise their payouts remains to be seen. However, the outlook for dividend growth appears promising. In the first quarter, US companies increased their cash reserves to a record $4.11 trillion, aided by a resilient economy and relatively high interest rates, which has accelerated the dividend growth process. According to S&P Dow Jones Indices, over 175 companies in the S&P 500 announced a dividend increase or initiated a dividend during the first half of 2024.
Another factor boosting the significance of dividend growth stocks is the upcoming Federal Reserve interest rate decision in September. Paul Baiocchi from SS&C ALPS Advisors considers this a prudent strategy, as he expects that the Fed will begin easing rates. The chief ETF strategist made the following comments while speaking at CNBC’s “ETF Edge”:
“Investors are moving back toward dividends out of money markets, out of fixed income, but also importantly toward leveraged companies that might be rewarded by a declining interest rate environment.”
He further said:
“You’re looking for dividends as part of the methodology, but you’re looking at dividends that are durable, dividends that have been growing, that are well supported by fundamentals.”
Various reports have indicated that while dividend growth companies may not deliver immediate rewards, they offer substantial long-term benefits. Nuveen, a financial planning firm based in Illinois, provided an optimistic outlook on dividend growth strategies this year, emphasizing their historical performance. The report suggested that companies focused on dividend growth possess valuable long-term characteristics and are well-positioned for strong relative performance in the year ahead. Over time, companies that consistently increase or initiate dividends have achieved higher annualized returns with lower volatility compared to other equity market segments. Although dividend growth companies may not outperform in every market environment, their robust risk-adjusted returns over extended periods make them an ideal foundation for any equity portfolio. With that, we will take a look at some of the best dividend stocks for steady dividend growth.
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Our Methodology:
For this list, we screened for dividend stocks with a 5-year average dividend growth rate of above 10%. From that list, we picked stocks with dividend growth track record of at least 10 years. The stocks are ranked in ascending order of their annual average dividend growth in the past five years.
We also measured hedge fund sentiment around each stock according to Insider Monkey’s database of 912 funds as of Q2 2024. 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).
12. Texas Instruments Incorporated (NASDAQ:TXN)
5-Year Average Dividend Growth: 11.04%
Consecutive Years of Dividend Growth: 12
Texas Instruments Incorporated (NASDAQ:TXN) is an American multinational semiconductor company that produces analog and embedded chips. The analog chip industry is experiencing one of its most severe downturns ever, and the company is struggling to navigate this challenging period. The company had initially set a long-term spending plan to increase its capital expenditures to around $5 billion annually over four years, a decision made when demand for industrial and automotive chips was surging in 2022 due to shortages. However, the current situation is quite different, leading to the company’s negative trailing twelve-month levered free cash flow of $789 million.
Despite this, Texas Instruments Incorporated (NASDAQ:TXN) is actively working to overcome the obstacles it faces. Over the past year, it has allocated $3.7 billion to research and development (R&D) and selling, general, and administrative expenses (SG&A), invested $5.0 billion in capital expenditures, and returned $4.9 billion to shareholders. The company has also revised its projections for free cash flow per share in various recovery scenarios for 2026, estimating a range between $8 and $12. The company’s strong history of cash flow and dividend growth continues to position it as a solid long-term investment. TXN has surged by over 24% since the start of 2024.
The London Company also highlighted the company’s recovery in its Q2 2024 investor letter. Here is what the firm has to say about Texas Instruments Incorporated (NASDAQ:TXN):
“Texas Instruments Incorporated (NASDAQ:TXN) – TXN rallied in 2Q despite declining revenue in its latest update. TXN is beginning to see some encouraging signs of destocking nearing an end and some sub segments of the market are experiencing improving demand. TXN continued to spend on capex and should begin to see positive benefits to cash flow next year from the CHIPS Act.”
In the past five years, Texas Instruments Incorporated (NASDAQ:TXN) has raised its dividends at an annual average rate of 11.04%. The company has overall raised its payouts for 12 consecutive years, which makes TXN one of the best dividend stocks for steady growth. It currently pays a quarterly dividend of $1.30 per share and has a dividend yield of 2.47%, as of August 23.
At the end of Q2 2024, 50 hedge funds tracked by Insider Monkey held stakes in Texas Instruments Incorporated (NASDAQ:TXN), up from 49 in the previous quarter. These stakes have a collective value of over $2.7 billion. With more than 4.2 million shares, First Eagle Investment Management was the company’s leading stakeholder in Q2.
11. Target Corporation (NYSE:TGT)
5-Year Average Dividend Growth: 11.37%
Consecutive Years of Dividend Growth: 53
Target Corporation (NYSE:TGT) is an American retail corporation that operates a chain of discount department stores and hypermarkets. The company experienced significant growth during the pandemic but has found it challenging to reach those heights again. However, the latest quarterly earnings report offered some optimism, causing the stock to jump over 10.3% between August 20 and August 21. Year-to-date, the stock is up by 10.7%.
In the second quarter of 2024, Target Corporation (NYSE:TGT)’s comparable sales, which had declined in the previous quarter, saw a 2% growth. This growth reflects a 0.7% increase in comparable store sales and an 8.7% rise in comparable digital sales. The company’s revenue for the quarter came in at $25.4 billion, which showed a 2.7% growth from the same period last year.
The results have given Target Corporation (NYSE:TGT) a sense of confidence, but its outlook remains cautious. Management has indicated that same-store sales growth is likely to slow to between 0% and 2% in Q3, with overall growth for the year expected to follow a similar pattern. Even then, they felt secure enough to raise their earnings guidance for both Q3 and the full year. The company now anticipates earning approximately $2.25 per share in the current Q3 and projects a year-end profit of around $9.35 per share for 2024.
During Q2 2024, Target Corporation (NYSE:TGT) returned $509 million to shareholders through dividends. In June this year, the company achieved its 53rd consecutive year of dividend growth. The company pays a quarterly dividend of $1.12 per share and has a dividend yield of 2.83%, as of August 23. With a five-year average annual dividend growth rate of 11.37%, TGT is one of the best dividend stocks for steady growth.
As of the close of Q2 2024, 52 hedge funds owned stakes in Target Corporation (NYSE:TGT), down from 67 in the previous quarter, as per Insider Monkey’s database. These stakes have a collective value of over $1.4 billion.
10. The Hershey Company (NYSE:HSY)
5-Year Average Dividend Growth: 12.52%
Consecutive Years of Dividend Growth: 15
With a five-year average annual dividend growth rate of 12.52%, The Hershey Company (NYSE:HSY) ranks tenth on our list of the best dividend stocks. The Pennsylvania-based confectionery company is currently dealing with some industry-related challenges. The current operating environment continues to be dynamic, with consumers reducing discretionary spending, which has affected the company’s business. However, the situation is not entirely bleak. In the second quarter of 2024, the company experienced ongoing growth in the confectionery category and saw momentum in its Salty Snacks portfolio. Upcoming innovations in the second half of the year are expected to invigorate its categories, and the company remains confident that its evolving strategies will meet consumers’ shifting needs and drive long-term success. Since the start of 2024, the stock has delivered a modest return of a little over 2%.
Analysts remain optimistic about The Hershey Company (NYSE:HSY)’s business, noting that people will continue buying chocolate, and the company holds a dominant position in the over $100 billion chocolate confectionery market. They believe that industry challenges are temporary and should not have any impact on the company’s long-term potential. Heartland Advisors also mentioned this in its Q1 2024 investor letter. Here is what the firm has written about The Hershey Company (NYSE:HSY):
“Consumer Staples. Another new position is The Hershey Company (NYSE:HSY), the leading chocolate confectionary company in North America with a growing presence in salty snacks and non-chocolate confections.
The maker of such popular brands as Hershey’s, Reese’s, Cadbury, and Jolly Rancher has historically traded at a premium to its consumer staples peers. But in an environment where consumer finances are stressed and input costs are climbing, that premium has disappeared. The stock is down 35% from its 2023 peak due to volume headwinds and margin pressures brought about by rising prices.
We believe Hershey simply needs to demonstrate to investors that these headwinds are cyclical and temporary in nature, while once again showcasing its ability to balance superior profitability with modest growth and stable market share. Cocoa prices, a key input for HSY, have seen a nearly unprecedented price spike on supply disruptions in West Africa (where the majority of global supply originates). While we cannot predict when cocoa prices deflate, we are confident HSY and its largest competitors will be slow to reverse price increases required to recoup the input cost squeeze. Encouragingly, after being hampered by supply chain constraints in the post-COVID-19 environment, HSY has a greater innovation slate and more capacity in place to grow in the coming years. The stock, meanwhile, now trades near historic lows relative to other blue chip consumer staples, the consumer staples sector as a whole, and the broad market.”
On August 1, The Hershey Company (NYSE:HSY) declared a quarterly dividend of $1.37 per share, which was in line with its previous dividend. The company has been rewarding shareholders with growing dividends for the past 15 consecutive years. The stock supports a dividend yield of 2.79%, as of August 23.
Insider Monkey’s database of Q2 2024 indicated that 39 hedge funds held stakes in The Hershey Company (NYSE:HSY), compared with 44 in the previous quarter. The consolidated value of these stakes is over $506 million.