5 Best Dividend Growth Stocks With High Upside Potential: Part 2

Given that being able to consistently raise one’s dividend through good times and bad is one of the prime indicators of having a wide moat, Insider Monkey has put together a list of the smart money’s favorite dividend growth stocks.

In the first article of the series, we analyzed five stocks that the smart money likes which yield over 2% and have raised their payout for 25 consecutive years or more. In this second article, we’ll cover the smart money’s favorite dividend growth stocks in Procter & Gamble Co (NYSE:PG), Exxon Mobil Corporation (NYSE:XOM), McDonald’s Corporation (NYSE:MCD), The Coca-Cola Co (NYSE:KO), and Chevron Corporation (NYSE:CVX).

We follow over 700 hedge funds and other institutional investors and by analyzing their quarterly 13F filings, we identify stocks that they are collectively bullish on and develop investment strategies based on this data. One strategy that outperformed the market over the last year involves selecting the 100 best-performing funds and identifying the 30 mid-cap stocks that they are collectively the most bullish on. Over the past year, this strategy generated returns of 18%, topping the 8% gain registered by S&P 500 ETFs.

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#5 Chevron Corporation (NYSE:CVX)

– Number of Hedge Fund Holders (as of September 30): 53
– Total Value of Hedge Fund Holdings (as of September 30): $2.24 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 1.00%

Although crude prices have been volatile over the past decade, Chevron Corporation (NYSE:CVX)’s payout has not. Due to the company’s strong balance sheet and integrated nature, Chevron has raised its dividend for 30-straight years. On account of the raises, Chevron shares currently yield 3.89%, a number attractive for any dividend investor. Investors have noticed Chevron’s dividend as shares of the company have rallied by 28% year-to-date (as many investors perceive Chevron’s dividend to be safer due to Brent’s rise). If OPEC can get its act together and Iraq and Iran play ball, there is the potential for more long-term upside ahead.

#4 The Coca-Cola Co (NYSE:KO)

– Number of Hedge Fund Holders (as of September 30): 53
– Total Value of Hedge Fund Holdings (as of September 30): $19.57 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 10.80%

Although more and more cities around the world are considering levying soft drink taxes, history is on The Coca-Cola Co (NYSE:KO)’s side. Not only has Coca-Cola raised its dividend for 53-consecutive years, but history has shown that ‘sin’ stocks with wide moats such as Philip Morris can still be very dependable dividend payers. Given that Coca-Cola has also diversified away from soft drinks, the company’s 3.37% yield is safer. Warren Buffett‘s Berkshire Hathaway owned 400 million Coca-Cola shares at the end of September.

We’ll check out three more high growth-potential dividend stock picks on the next page.

#3 McDonald’s Corporation (NYSE:MCD)

– Number of Hedge Fund Holders (as of September 30): 55
– Total Value of Hedge Fund Holdings (as of September 30): $2.77 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 2.90%

With the election of Donald Trump as the 45th President of the United States, McDonald’s Corporation (NYSE:MCD) shareholders have several things to be happy about. Under a Trump administration, McDonald’s taxes will likely be lower, providing more capital for management to return to shareholders. Given Trump’s business-friendly stance, the push for sharply-higher minimum wage could take a back-seat, lowering labor-inflation for McDonald’s. Both potential developments are good for McDonald’s Corporation’s dividend, which has increased for 39-straight years and currently yields 3.12%.

#2 Exxon Mobil Corporation (NYSE:XOM)

– Number of Hedge Fund Holders (as of September 30): 59
– Total Value of Hedge Fund Holdings (as of September 30): $2.83 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 0.80%

In terms of scale and safety, there is no better investment in the energy sector than Exxon Mobil Corporation (NYSE:XOM). Not only has Exxon Mobil raised its dividend for 33 years in a row, but the company also has one of the lowest cost of production in the public industry. Throw in the fact that Exxon has a natural hedge in its enormous downstream business, and it’s not hard to see why traders have bid up the stock by 15.7% year-to-date. With Trump having threatened to tear up the Iran deal, the country could be more conciliatory when it comes to OPEC cutting production. As a result, Brent could go higher and help Exxon Mobil’s profits grow.

#1 Procter & Gamble Co (NYSE:PG)

– Number of Hedge Fund Holders (as of September 30): 71
– Total Value of Hedge Fund Holdings (as of September 30): $20.1 billion
– Hedge Fund Holdings as Percent of Float (as of September 30): 2.50%

Although Procter & Gamble Co (NYSE:PG) isn’t cheap with a forward P/E of around 20, the stock has proven to be a very dependable dividend payer. The consumer staple has raised its dividend each year for 59-consecutive years, and has a current yield of around 3.21%. According to our database of 742 funds which filed 13Fs for the September quarter, 71 owned shares of Procter & Gamble Co (NYSE:PG) at the end of September, up by 15 funds from the end of the previous quarter. Although the company’s international earnings could languish due to the strong dollar, Procter & Gamble will benefit from a stronger U.S. economy and lower taxes.

Disclosure: None