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.
9. The Home Depot, Inc. (NYSE:HD)
5-Year Average Dividend Growth: 12.67%
Consecutive Years of Dividend Growth: 14
The Home Depot, Inc. (NYSE:HD) is a Georgia-based home improvement company that sells related construction products and offers services to its consumers. During the second quarter of 2024, the long-term fundamentals driving demand for home improvement remain solid. However, elevated interest rates and increased macroeconomic uncertainty weighed on consumer demand overall, leading to reduced spending on home improvement projects. Nevertheless, the company effectively managed these challenges while maintaining strong execution.
The Home Depot, Inc. (NYSE:HD) is also impacted by high interest rates due to its dependence on the housing market. Over the past two years, elevated interest rates have dampened the housing market, resulting in fewer people buying existing homes or undertaking major renovations, as these activities have become less affordable. In the second quarter of 2024, the company reported revenue of over $43 billion, which showed a modest growth of 0.6% from the same period last year.
Polen Capital also highlighted this interest rate sensitivity in its Q2 2024 investor letter. Here is what the firm has to say:
“In the second quarter, the top relative contributors to the Portfolio’s performance were all names we do not hold: The Home Depot, Inc. (NYSE:HD), Meta Platforms, and AbbVie. With Home Depot, much of the quarter’s weakness came in April, as a higher-than-expected inflation reading caused investors to question the likelihood of imminent rate cuts in 2024. Given Home Depot’s sensitivity to interest rates, as it relates to home improvement projects, the stock sold off in the period.”
That said, The Home Depot, Inc. (NYSE:HD) the company is expected to recover since consumer behavior tends to follow cyclical patterns. Stocks that benefit from economic upturns are often in the midst of a significant long-term growth trend. In addition, the company’s cash position is strong. In the most recent quarter, it reported an operating cash flow of nearly $11 billion.
The Home Depot, Inc. (NYSE:HD), one of the best dividend stocks, currently pays a quarterly dividend of $2.25 per share. The company has been rewarding shareholders with growing dividends for the past 14 years and has raised its payouts at an annual average rate of 12.67% over the past five years. As of August 23, the stock has a dividend yield of 2.40%.
The Home Depot, Inc. (NYSE:HD) was a popular stock among elite funds during Q2 2024, as 86 funds were bullish on the company, growing from 70 in the preceding quarter, according to Insider Monkey’s database. The stakes held by these hedge funds are collectively worth over $6 billion. Among these hedge funds, Fisher Asset Management was the company’s leading stakeholder in Q2.
8. Eli Lilly and Company (NYSE:LLY)
5-Year Average Dividend Growth: 15.03%
Consecutive Years of Dividend Growth: 10
Eli Lilly and Company (NYSE:LLY) is an Indiana-based pharmaceutical company that manufactures and develops a wide range of medicines for serious ailments. In the second quarter of 2024, Mounjaro, Zepbound, and Verzenio were key drivers of strong financial results, alongside progress in manufacturing expansion efforts. Equally noteworthy is the global growth of the company’s treatments for cancer, neurological disorders, and autoimmune diseases. In addition, the recent approval of Kisunla to assist those with Alzheimer’s disease marks a significant achievement after decades of effort. The company is outperforming the broader market in 2024, returning nearly 61%.
Baron Funds highlighted reasons for Eli Lilly and Company’s (NYSE:LLY) strong returns this year in its Q2 2024 investor letter:
“Shares of global pharmaceutical company Eli Lilly and Company (NYSE:LLY) increased on continued investor enthusiasm around GLP-1 drugs for diabetes and obesity. We remain shareholders. Lilly’s Mounjaro/Zepbound not only offers superb blood sugar control for diabetics but can drive 20%-plus weight loss and likely improve cardiovascular outcomes in both diabetic and non-diabetic obese patients. Lilly is developing next generation drugs, including retatrutide, which drives approximately 25% weight loss, and orforglipron, a daily pill that produces approximately 15% weight loss. In the U.S. alone, there are 32 million Type 2 diabetics and an additional 105 million obese patients who we estimate would qualify for GLP-1 drugs. Although supply and access are limited near term, we think GLP-1 drugs will become standard of care for both diabetes and obesity and will become a $150 billion-plus category. We see Lilly setting a high efficacy bar and capturing significant long-term market share. We think the adoption of GLP-1s will drive Lilly to triple total revenue by 2030.”
Eli Lilly and Company (NYSE:LLY) reported revenue of $11.3 billion in the second quarter of 2024, up 36% from the same period last year. The revenue also beat analysts’ estimates by $1.34 billion. The company’s gross margins also rose 40% to $9.13 billion in Q2 2024, with the gross margin as a percentage of revenue reaching 80.8%, up by 2.5 percentage points. This improvement was mainly due to a favorable product mix and higher realized prices, though it was slightly offset by increased production costs.
Eli Lilly and Company (NYSE:LLY) is a strong dividend payer, offering regular payouts to shareholders since 1885. In addition, the company has raised its payouts for 10 consecutive years, with its 5-year average annual dividend growth of over 15%. It pays a quarterly dividend of $1.30 per share and has a dividend yield of 0.55%.
According to Insider Monkey’s database of Q2 2024, 100 hedge funds owned stakes in Eli Lilly and Company (NYSE:LLY), down from 109 in the previous quarter. The total value of these stakes is over $16 billion. With nearly 5 million shares, Fisher Asset Management was the company’s leading stakeholder in Q2.
7. UnitedHealth Group Incorporated (NYSE:UNH)
5-Year Average Dividend Growth: 15.41%
Consecutive Years of Dividend Growth: 15
UnitedHealth Group Incorporated (NYSE:UNH) is an American multinational health insurance and services company. On August 7, the company declared a quarterly dividend of $2.10 per share, having raised it by 11.7% in June this year. This marked the company’s 15th consecutive year of dividend growth, which makes UNH one of the best dividend stocks for steady growth. Its five-year average annual dividend growth rate comes in at 15.4%. The stock’s dividend yield on August 23 came in at 1.44%.
Over the past decade, UnitedHealth Group Incorporated (NYSE:UNH) has proven to be a remarkable investment, delivering nearly 600% returns and consistently outperforming the market, offering investors impressive gains. This performance highlights that investing in a leading healthcare company can be a reliable strategy for generating robust, consistent returns, especially as spending in the sector is expected to continue increasing in the future. UnitedHealth Group Incorporated (NYSE:UNH) effectively draws investors by implementing its expansion strategies. In recent years, it has broadened its reach into related areas, such as home healthcare and analytics, to diversify its operations further. These efforts aim to deliver greater value to its partners and patients.
Andvari Associates highlighted the strengths of UnitedHealth Group Incorporated (NYSE:UNH) in its Q2 2024 investor letter. Here is what the firm wrote:
“UnitedHealth Group Incorporated (NYSE:UNH) is one of the largest providers and distributors of services in the $5 trillion U.S. healthcare market. The company provides services to employers, individuals, and those eligible for Medicare and Medicaid. United’s Optum segment provides pharmacy benefit services and a slate of other insights and services to the major players in the healthcare space: physicians, hospitals, government agencies, and life science companies.
This is a company that provides essential services and has a strong wind at its back. Over two million people are enrolling in Medicare and Medicare Advantage every year. With the increase of healthcare spending every year, the value of the services and insights provided by Optum will only increase. United is a solid business with a high teens returns on its capital. After reinvesting in its businesses, United will likely return $16 billion in 2024 in the form of dividends and share repurchases off a revenue base of ~$380 billion.”
These initiatives have significantly fueled UnitedHealth Group Incorporated’s (NYSE:UNH) growth over time. Since 2011, UnitedHealth’s revenue has more than tripled, rising from just over $101 billion to nearly $372 billion by 2023. In the second quarter of 2024, the company reported revenue of $98.8 billion, up 6.41% from the same period last year. Its operating cash flow amounted to $6.7 billion, representing 1.5 times the net income.
The number of hedge funds tracked by Insider Monkey owning stakes in UnitedHealth Group Incorporated (NYSE:UNH) grew to 114 at the end of Q2 2024, from 104 in the previous quarter. These stakes have a total value of over $12.5 billion.
6. Broadcom Inc. (NASDAQ:AVGO)
5-Year Average Dividend Growth: 15.97%
Consecutive Years of Dividend Growth: 13
Broadcom Inc. (NASDAQ:AVGO) is an American multinational semiconductor company, based in California. The company offers a wide range of semiconductor and infrastructure software products. In the past five years, the company has raised its payouts at an annual average rate of nearly 16% and holds a 13-year track record of consistent dividend growth, coming through as one of the best dividend stocks for steady growth. The company offers a quarterly dividend of $5.25 per share and supports a dividend yield of 1.26%, as of August 23.
Broadcom Inc. (NASDAQ:AVGO) provides network and data center solutions, along with cloud-based tools, through its subsidiary, VMware. While approximately 60% of its revenue is generated from semiconductor solutions, its infrastructure software segment has been experiencing notable growth. Positioned at the intersection of AI and semiconductors, the company presents a compelling investment opportunity. Over the past year, the stock has surged by nearly 90%, leading management to initiate a 10-for-1 stock split in July, making Broadcom shares more accessible to both investors and employees.
Broadcom Inc. (NASDAQ:AVGO) generated $12.5 billion in revenues in the second quarter of 2024, which saw a 43% growth from the same period last year. The company is particularly strong in generating consistent cash flow, setting it apart from many other tech companies. Its operating cash flow for the quarter came in at $4.5 billion and its free cash flow was over $4.4 billion. The free cash flow represented 36% of the company’s revenue. The cash flow was sufficient to pay $2.5 billion to shareholders through dividends.
Of the 912 hedge funds tracked by Insider Monkey at the end of Q2 2024, 130 funds owned stakes in Broadcom Inc. (NASDAQ:AVGO), jumping from 115 in the previous quarter. These stakes are collectively valued at over $20 billion. Among these hedge funds, GQG Partners was the company’s leading stakeholder in Q2.
5. Domino’s Pizza, Inc. (NYSE:DPZ)
5-Year Average Dividend Growth: 17.78%
Consecutive Years of Dividend Growth: 12
An American multinational pizza restaurant chain, Domino’s Pizza, Inc. (NYSE:DPZ) ranks fifth on our list of the best dividend stocks for steady growth. On July 18, the company declared a quarterly dividend of $1.51 per share, which fell in line with its previous dividend. The company’s dividend growth streak spans over 12 years and in the past five years, it has raised its payouts at an annual average rate of 17.7%. The stock offers a dividend yield of 1.42%, as of August 23.
Since the start of 2024, Domino’s Pizza, Inc. (NYSE:DPZ) surged by just 3%. The stock fell significantly by over 13.5% between July 17 and July 18, when the company announced its Q2 earnings. Though it reported strong earnings in the quarter, its same-store sales growth fell short of expectations. Investors were particularly discouraged by a modest increase in its operating profits. That said, for the second consecutive quarter, the company achieved U.S. comparable performance in an ideal manner, driven by profitable growth in order count. Positive order counts were seen in both delivery and carryout segments, as well as across all income groups. The strategy is clearly resonating with customers and the entire system, instilling confidence in the company’s ability to create substantial long-term value for its shareholders.
Apart from management’s confidence in Domino’s Pizza, Inc. (NYSE:DPZ)’s operations, investors can take comfort in its solid cash position. In the first two quarters of the year, the company reported an operating cash flow came in at $274.2 million, up from $242.3 million in the same period last year. Its free cash flow also increased to $230.5 million, from $204.3 million on a YoY basis.
Domino’s Pizza, Inc. (NYSE:DPZ) remained popular among elite funds during Q2 2024, as hedge fund positions in the company jumped to 52, from 40 in the previous quarter, as per Insider Monkey’s database. The stakes held by these hedge funds are valued at $1.4 billion. Ken Griffin’s Citadel Investment Group owned the largest stake in the company.
4. Booz Allen Hamilton Holding Corporation (NYSE:BAH)
5-Year Average Dividend Growth: 17.84%
Consecutive Years of Dividend Growth: 12
Booz Allen Hamilton Holding Corporation (NYSE:BAH) is a Virginia-based management and technology consulting company that provides a range of services to government agencies, corporations, and non-profit organizations. The stock has delivered a 21.5% return year-to-date, outperforming the market. The company began fiscal year 2025 with strong first-quarter earnings, showcasing its strategic and operational momentum. Management indicated that they are on track to meet their fiscal year guidance and multi-year investment goals. The company’s velocity, leadership, and technology, or VoLT, initiative continues to drive growth, propelling the company forward as it supports clients’ national priority missions with transformative technology solutions.
LVS Advisory highlighted the company’s business in its Q1 2024 investor letter. Here is what the firm has to say:
“We added Booz Allen Hamilton Holding Corporation (NYSE:BAH) to the growth portfolio in October 2023. I am highlighting Booz Allen this quarter because the exercise of comparing BAH to CACI serves as an interesting example of weighing the trade-offs between “quality” and “value” when picking stocks.
Booz Allen is a technology consulting firm specializing in government contracting. Founded in 1914, Booz Allen has a storied history partnering with the US Government which includes helping the US Navy prepare for World War II. These deep roots have helped engrain the Company into the fabric of Washington DC and provide a foundation for the business’ deep moat.” (Click here to read the full text)
Booz Allen Hamilton Holding Corporation (NYSE:BAH) overall returns also came in strong. The company reported revenue of $2.9 billion, which showed a 10.8% from the same period last year. Its net income also grew by 2.4% on a YoY basis to $165 million. The company also presented a positive outlook for its revenues for FY25, expecting it to grow between 8% to 11% during the period.
Booz Allen Hamilton Holding Corporation (NYSE:BAH) also saw an improvement in its cash position during the quarter. For fiscal year 2025, net cash from operating activities was $52.1 million, a significant turnaround from the $71.5 million net cash outflow in the previous year. Additionally, free cash flow for the first quarter of fiscal year 2025 was $19.7 million, compared to a negative $82.0 million in the prior year.
With a five-year average annual dividend growth rate of 17.84%, Booz Allen Hamilton Holding Corporation (NYSE:BAH) is one of the best dividend stocks on our list. Moreover, the company has raised its payouts for 12 years in a row. During the most recent quarter, it returned $66.4 million to shareholders through dividends. The company currently offers a quarterly dividend of $0.51 per share and has a dividend yield of 1.32%, as of August 23.
The number of hedge funds tracked by Insider Monkey owning stakes in Booz Allen Hamilton Holding Corporation (NYSE:BAH) grew to 47 in Q2 2024, from 41 in the previous quarter. These stakes are collectively valued at nearly $346 million.
3. Costco Wholesale Corporation (NASDAQ:COST)
5-Year Average Dividend Growth: 17.92%
Consecutive Years of Dividend Growth: 20
Costco Wholesale Corporation (NASDAQ:COST) is a Washington-based retail company that deals in a wide range of products for its consumers. The company currently operates 878 warehouses in different locations. The company’s business has remained consistent, as the stock returned more than 220% in the past five years. One of the main reasons for this growth is that the company operates within a sector that typically weathers economic downturns well, and its expansion is still ongoing. In 2024, the company plans to open 28 new stores worldwide, with most of them in the US. As it increases its number of locations, it’s likely to see a rise in memberships and revenue, which should support long-term growth in sales and earnings.
Additionally, Costco Wholesale Corporation (NASDAQ:COST) is well-positioned to capitalize on the ongoing shift toward online shopping. The retailer anticipates that its extensive range of competitively priced products will continue to draw customers both online and in physical stores. ClearBridge Investments highlighted consumer sentiment in its Q2 2024 investor letter. Here is what the firm said about COST:
“Consumer staples holdings were also standouts in the quarter, such as Costco Wholesale Corporation (NASDAQ:COST), which continues to execute well and delivered better than expected earnings, helped by strong traffic driving better expense leverage. Customers also looked to be shifting toward more discretionary purchases.”
Costco Wholesale Corporation (NASDAQ:COST) demonstrates its robust business fundamentals through its solid track record of dividend payments. The company offers a quarterly dividend of $1.16 per share, growing it by 13.7% in April this year. This marked the company’s 20th consecutive year of dividend growth. Over the past five years, its annual average dividend growth rate was roughly 18%. The company also paid a special dividend of $15 per share at the end of 2023. As of August 23, the stock has a dividend yield of 0.53%.
Costco Wholesale Corporation (NASDAQ:COST) was included in 71 hedge fund portfolios at the end of Q2 2024, up from 65 in the previous quarter, as per Insider Monkey’s database. The stakes held by these hedge funds have a collective value of roughly $6 billion.
2. Lowe’s Companies, Inc. (NYSE:LOW)
5-Year Average Dividend Growth: 18.05%
Consecutive Years of Dividend Growth: 59
Lowe’s Companies, Inc. (NYSE:LOW) is a North Carolina-based retail company that specializes in home improvement. The stock has surged by over 14% since the start of 2024 despite facing some industry-related challenges this year. In addition, the company reported strong earnings in the second quarter of 2024. It demonstrated solid operational performance and enhanced customer service, even amid a difficult macroeconomic environment, particularly for homeowners. The momentum of the Total Home strategy is evident, as shown by the mid-single-digit growth in comparable sales with Pro customers this quarter. The company generates most of its revenue from DIY shoppers, but in the latest quarter, it noted a decline in demand for DIY projects as consumers are increasingly shifting their spending towards travel and dining out.
Lowe’s Companies, Inc. (NYSE:LOW) reported revenue of $23.6 billion in Q2 2024, down from 5.5% from the same period last year. The revenue also missed analysts’ estimates by $372.3 million. Comparable sales also declined by 5.1% on a YoY basis. That said, the management is confident in the recovery of its business as soon as the market conditions improve. Madison Investments also presented a positive outlook of the company in its Q2 2024 investor letter. Here is what the firm has to say:
“At home improvement retailer Lowe’s Companies, Inc. (NYSE:LOW), sales continue to be weak. The economic backdrop in housing is particularly interesting at the moment. On one hand, employment levels are healthy and home values remain resilient. On the other hand, housing turnover, which is essentially the number of homes that have been sold relative to the housing stock, is at historically low levels as homeowners are resistant to giving up low mortgage rates on their current home for a higher rate on a new home. Housing turnover is an important business driver for Lowe’s, so the depressed level of activity has weighed on its profits. However, over time we expect it to normalize and Lowe’s performance to improve.”
Although Lowe’s Companies, Inc. (NYSE:LOW) experienced a decline in revenue, its cash generation remained stable throughout the quarter. The company ended the quarter with over $4.3 billion in cash and cash equivalents, up from $3.5 billion in the same period last year. Its operating cash flow also grew to $7.4 billion, from $6 billion in the prior-year period. During the quarter, it also returned $629 million to shareholders through dividends.
Lowe’s Companies, Inc. (NYSE:LOW) currently offers a quarterly dividend of $1.15 per share, having raised it by 5% in May this year. This increase in its dividend stretched the company’s dividend growth streak to 59 years, which makes LOW one of the best dividend stocks for steady growth. Over the past five years, the company has raised its dividends at an annual average rate of over 18%. The stock’s dividend yield on August 23 came in at 1.84%.
At the end of June 2024, 62 hedge funds tracked by Insider Monkey held stakes in Lowe’s Companies, Inc. (NYSE:LOW), up from 60 a quarter earlier. These stakes have a total value of nearly $1.7 billion. With over 1 million shares, Soroban Capital Partners was the company’s largest stakeholder in Q2.
1. Tractor Supply Company (NASDAQ:TSCO)
5-Year Average Dividend Growth: 27.19%
Consecutive Years of Dividend Growth: 15
Tractor Supply Company (NASDAQ:TSCO) tops our list of the best dividend stocks for steady growth. The American farm supplies and home improvement company’s business model has shown resilience across various economic cycles, primarily due to its focus on CUE (consumable, usable, and edible) products. These essential items, such as livestock feed, bedding, weed control, and fertilizer, are regularly needed by consumers, ensuring consistent demand. The stock has surged by nearly 178% in the past five years, which shows that the company’s operations are likely to remain more stable than many other retailers during a recession.
In the second quarter of 2024, Tractor Supply Company (NASDAQ:TSCO) reported revenue of $4.2 billion, which showed a 1.48% growth from the same quarter last year. Gross profit also showed a 2.7% increase on a YoY basis at $1.56 billion. ClearBridge Investments has given a bullish outlook for the stock in its Q1 2024 investor letter. Here is what the firm wrote:
“In consumer sectors, we added Tractor Supply Company (NASDAQ:TSCO) and e.l.f. Beauty. Tractor Supply, in the consumer discretionary sector, is the largest rural lifestyle retailer in the U.S. We believe the company has meaningful scale and distribution advantages giving it a cost-to-serve edge, and notably generates 77% of sales from its 32 million loyalty members. Despite being the biggest retailer of its kind, Tractor Supply has only high single-digit market share of its large and growing addressable market, estimated to be approximately $180 billion. We see opportunities for Tractor Supply to resume its strong earnings trajectory as growth related to post-pandemic normalization nears a bottom. Operating margins have been flat for the past few years, but with investments peaking, margins should start to lever again with same store sales growth.”
As a dividend payer, Tractor Supply Company (NASDAQ:TSCO)’s cash position also remained strong in the most recent quarter. The company generated over $817.3 million in operating cash flow, growing from $782.3 million in the prior-year period. The company also returned $118.5 million to shareholders in dividends during the quarter. It has been growing its dividends for 15 consecutive years, with a five-year average annual dividend growth rate of over 27%. The company’s quarterly payout comes in at $1.10 per share for a dividend yield of 1.63%, as of August 23.
Of the 912 hedge funds tracked by Insider Monkey at the end of Q2 2024, 35 funds held stakes in Tractor Supply Company (NASDAQ:TSCO), up from 32 a quarter earlier. These stakes are worth $784 million in total. With over 1.5 million shares, Select Equity Group was the company’s leading stakeholder in Q2.
While we acknowledge the potential of TSCO as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than TSCO but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.
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Disclosure: None. This article is originally published at Insider Monkey.
