In this article, we will take a look at some of the best dividend growth stocks.
Investors continue to favor large-cap stocks, as these companies often serve as the foundation of popular index funds and are well-known among both seasoned professionals and casual traders. Moreover, large-cap firms have demonstrated their ability to withstand economic uncertainty, thanks to their strong market presence and substantial cash reserves, which help them weather financial downturns with relative ease. For the second consecutive year in 2024, US large-cap stocks outpaced cash, bonds, and international equities, securing the top spot in market performance.
Also read: 12 Best International Dividend Stocks To Buy Now
A Morningstar report revealed that over the 10-year period ending June 30, 2024, large-cap stocks have outperformed small-cap stocks by an average of more than 6 percentage points annually. This disparity stems from differences in sector exposure—small-cap benchmarks have a lower concentration of technology stocks and a greater presence in traditional industries like consumer cyclicals, financials, real estate, and industrials. Although economic growth has been robust, these sectors have struggled to match the pace set by technology-related stocks.
In addition, according to JPMorgan Wealth Management, large-cap stocks play a key role in driving long-term capital appreciation for investors. Over the 10-year period from 2013 to March 2023, large-cap stocks delivered a total return of 162%, outperforming mid-cap and small-cap stocks, which posted returns of 139% and 108%, respectively.
Large-cap stocks demonstrate their resilience through their ability to increase dividends even in times of market distress. Several leading companies have maintained decades-long streaks of dividend growth, weathering major economic crises such as the 2008 recession and the 2020 pandemic. A report by T. Rowe Price highlighted that large-cap firms with a track record of consistent dividend increases have shown relative strength during downturns, suffering smaller losses than the broader market. In addition, these companies have often outperformed during periods of market stagnation and have participated in a substantial share of gains during bull markets.
Dividend growth is a key factor when evaluating dividend stocks, as companies that consistently raise their payouts have historically outperformed those that do not. A report by RMB Capital found that between 1972 and 2018, companies that initiated or grew their dividends achieved an average annual return of 9.62%, significantly surpassing the 2.40% return of non-dividend-paying firms. Even the broader market, with a 7.30% return, lagged behind dividend growers. The report also emphasized that companies with a strong history of dividend increases have not only sustained but expanded their payouts, even during economic downturns. From a portfolio perspective, dividend growth stocks provide solid diversification, as they are spread across multiple industries. This offers an advantage over high-yield portfolios, which tend to be concentrated in mature sectors like utilities and, prior to 2007, financials.
Analysts recommend incorporating dividend stocks into income portfolios, especially as several major tech companies have adopted dividend policies this year. With robust cash flows, these firms are well-positioned to maintain and expand their dividend payouts over time. Given this, we will take a look at some of the best large-cap dividend growth stocks.
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Our Methodology:
For this list, we first used a stock screener to identify large-cap dividend stocks with market capitalization above $10 billion. From that list, we shortlisted stocks that have 5-year average dividend growth rates of above 10%. The stocks are ranked in ascending order of their dividend growth rates.
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14. United Parcel Service, Inc. (NYSE:UPS)
5-Year Average Annual Dividend Growth Rate: 11.17%
United Parcel Service, Inc. (NYSE:UPS) is an American shipping and supply chain management company that offers various related services to its consumers. The stock saw an 8.6% decline over the past month as investors grew wary of falling package volumes. The drop followed the company’s decision to scale back its business with Amazon Business, which accounts for 11.8% of UPS’s total revenue of $91.1 billion. However, the company reported strong earnings in its most recent quarter.
United Parcel Service, Inc. (NYSE:UPS) reported revenue of $25.3 billion in the fourth quarter of 2024, reflecting a 1.54% increase compared to the same period last year. It has reached a preliminary agreement with its largest customer to cut volume by more than 50% by the second half of 2026. In addition, beginning January 1, 2025, it will fully manage its UPS SurePost product in-house. In response to these shifts, the company is restructuring its US network and implementing multi-year “efficiency reimagined” initiatives, aiming to save approximately $1.0 billion through an extensive process redesign.
United Parcel Service, Inc. (NYSE:UPS) remains a favored choice among income investors due to its solid dividend track record and strong financial position. In fiscal year 2024, the company generated $10.1 billion in operating cash flow, with free cash flow reaching $6.3 billion. Moreover, it returned $5.9 billion to shareholders through dividends and share buybacks. On February 6, the company declared a 0.6% hike in its quarterly dividend to $1.64 per share. This marked the company’s 23rd consecutive year of dividend growth, which makes UPS one of the best dividend stocks on our list. The stock has a dividend yield of 5.74%, as of February 12.
13. Target Corporation (NYSE:TGT)
5-Year Average Annual Dividend Growth Rate: 11.23%
Target Corporation (NYSE:TGT) is a Minnesota-based retail corporation that operates a chain of hypermarkets and discount department stores. Over the past year, the company has consistently grown its operating income while maintaining a strong financial position. Despite carrying a relatively high level of debt, the company has enough cash, cash equivalents, and short-term investments to cover its short-term obligations. Its increasing cash reserves, coupled with an interest coverage ratio of 11.6, further support its financial stability. In addition, Target’s solid liquidity is underpinned by a clean balance sheet with no intangible assets and a healthy return on invested capital (ROIC) of 11.5%.
In January, Target Corporation (NYSE:TGT) reiterated its commitment to wellness by announcing plans to introduce over 2,000 new products across multiple categories, including more than 600 exclusive to the company. Furthermore, it is expanding its men’s wellness range with new offerings, such as Dr. Squatch body care, additional products from Dwayne Johnson’s Papatui men’s care line, and a new men’s fragrance from the vegan brand Fin’ery.
Target Corporation (NYSE:TGT) boasts a solid dividend history and a strong financial position. In the first nine months of 2024, the company generated $4.07 billion in operating cash flow and held $3.4 billion in cash and cash equivalents by the end of the quarter. This financial strength enabled the company to return $516 million to shareholders through dividends. The company offers a quarterly dividend of $1.12 per share with a dividend yield of 3.51%, as of February 12. Over the past five years, Target has increased its dividend payouts at an average annual rate of 11.2%, and it has maintained an impressive 53-year streak of consistent dividend growth, which makes TGT one of the best dividend stocks on our list.
12. American Express Company (NYSE:AXP)
5-Year Average Annual Dividend Growth Rate: 11.29%
American Express Company (NYSE:AXP) is an American bank holding company. In the fourth quarter of 2024, the company reported revenue exceeding $17 billion, a 9% increase from the same period last year. The company’s net income for the quarter reached over $2.1 billion, marking a 12% year-over-year growth. American Express set records for annual Card Member spending, net card fee revenues, and new card acquisitions, adding 13 million new cards throughout the year. The company also expanded its global network, adding millions of new merchant locations. By year-end, growth accelerated, with billings increasing by 8% in the fourth quarter, fueled by stronger consumer and commercial spending during the holiday season.
In the past 12 months, American Express Company (NYSE:AXP) has surged by over 44%. Over the long run, the company has proven to be an outstanding investment, delivering a 100-fold return since Warren Buffett first acquired the stock and a 21% compound annual growth rate (CAGR) in total returns over the past five years. It has developed a nearly permanent model for inflation protection, with its strong competitive advantages becoming more evident as it continues to grow.
American Express Company (NYSE:AXP) is one of the best dividend stocks on our list as the company has raised its payouts six times in the past three years. Currently, it offers a quarterly dividend of $0.82 per share and has a dividend yield of 0.91%, as of February 12.