Below we present the list of 5 Best Large Cap Dividend Growth Stocks To Buy. For our methodology and a more comprehensive list please see the 15 Best Large Cap Dividend Growth Stocks To Buy.
5. Thermo Fisher Scientific Inc. (NYSE:TMO)
Number of Hedge Fund Shareholders: 93
5-Year Dividend Growth Rate: 14.1%
Thermo Fisher Scientific Inc. (NYSE:TMO) is in the midst of growing its dividend for the fifth straight year following several years of flat dividends. The life sciences and diagnostics company grew its dividend by 15% in the first quarter of this year and has a payout ratio of under 5%, so there’s plenty of untapped room for dividend growth. That said, it will take several years before the stock’s yield is likely to be palatable to some dividend investors, as it currently stands at just 0.24%.
Thermo Fisher more than doubled its revenue between 2016 and 2021, with that figure hitting $39.2 billion last year. It’s accomplished that partly through acquisitions, which the company deploys a significant chunk of its capital on, which is why it’s been somewhat hesitant to get overly aggressive with its dividend. Should the company eventually move away from that strategy and return more of its capital to shareholders instead, they could be in for a windfall.
Hedge fund ownership of Thermo Fisher Scientific Inc. (NYSE:TMO) has more than doubled over the last five years, hitting an all-time high in the first quarter of 2022. Stephen Mandel’s Lone Pine Capital raised its stake in TMO by 80% during Q2 to 932,292 shares worth over $506 million. Ferdinand Groos’ Cryder Capital and Stoyan Hadjivaltchev’s Snowhook Capital Management each have greater than 12% exposure to the stock in their 13F portfolios.
Baron Funds is bullish on Thermo Fisher Scientific Inc. (NYSE:TMO) long-term growth outlook, as revealed in its Q3 2022 investor letter:
“Thermo Fisher Scientific Inc. (NYSE:TMO) is the world’s largest life sciences tools company. Shares fell due to the rotation out of life sciences tools stocks, driven by concerns about a possible global recession, foreign currency exposure, COVID-related lockdowns in China, and reduced levels of biotechnology funding. We continue to believe Thermo Fisher has a strong long-term growth outlook given a large and growing addressable market coupled with its industry-leading scale, commercial infrastructure, e-commerce platform, supply-chain capabilities, and R&D investment.”
4. Bank of America Corporation (NYSE:BAC)
Number of Hedge Fund Shareholders: 99
5-Year Dividend Growth Rate: 19.8%
Bank of America Corporation (NYSE:BAC) boasts the highest 5-year dividend growth rate among the stocks in this list at a nearly 20% CAGR, with its dividend payments nearly tripling between 2016 and 2022. Its dividend yield has been pushed to a respectable 2.43% thanks to that and with Bank of America’s payout ratio standing around 27%, there’s plenty of room for further long-term dividend growth.
That’s particularly true in the current rising interest rate environment, which is allowing investment banks like Bank of America and JPMorgan (up next on the list) to rake in boatloads of cash thanks in part to their stable of noninterest-bearing deposits. Bank of America grew its net interest income by 24% year-over-year during Q3 and is poised for billions more in the quarters to come as interest rates continue to push higher.
Bank of America Corporation (NYSE:BAC) was the 14th most popular stock among hedge funds in Q2, though ownership of the stock has fallen substantially since the first quarter of 2017, falling by 40% during that time. Warren Buffett’s Berkshire Hathaway owns 1.01 billion BAC shares as of June 30, worth over $31.4 billion.
Ric Dillon’s Diamond Hill Capital Management discussed some of the reasons why investors fled Bank of America Corporation (NYSE:BAC) shares during Q2 (down 24.5%) in the fund’s Q2 2022 investor letter:
“Bank of America Corporation (NYSE:BAC) shares were weak in Q2 as the market became increasingly focused on the possibility of a near-term recession and the potential for credit losses along with current fee revenue pressures.”
3. JPMorgan Chase & Co. (NYSE:JPM)
Number of Hedge Fund Shareholders: 104
5-Year Dividend Growth Rate: 14.4%
JPMorgan Chase & Co. (NYSE:JPM) is slightly ahead of Bank of America in the dividend game, with a yield that’s already approaching 3.2% and a slightly higher payout ratio of 34%. That’s allowed it to grow its dividend at a slightly slower pace over the past five years while remaining one of the best large cap dividend growth stocks on the market.
JPMorgan’s own net interest income continued to grow at a strong pace during Q3, driven by strong revenue growth in its wealth management business, as well as its consumer and commercial banking divisions. The company expects to grow EPS by $1.26 to $12.73 next year, which could be conservative should interest rates rise as much as projected.
JPMorgan Chase & Co. (NYSE:JPM) is the most popular investment bank among hedge funds and the 13th most popular stock overall, though ownership of the stock has dipped by 14% over the last two years. Edgar Wachenheim’s Greenhaven Associates raised its JPM stake by 7% to 4.82 million shares during Q3 and has 10.6% 13F exposure to the stock.
Vltava Fund believes JPMorgan Chase & Co. (NYSE:JPM) is the strongest and best-managed bank in the world, as revealed in the fund’s Q3 2022 investor letter:
“We regard JPM to be the strongest and best-managed bank in the world. It is a leader in investment banking, commercial banking, credit cards, and asset management. Its size (the largest bank in the USA, with nearly USD 4,000 billion in assets) and diversification give it a strong competitive advantage that is compounded by its cost advantages and the high costs to clients associated with switching banks. JPM’s management prides itself on running the only large bank to avoid major instability over the long term.
JP Morgan’s quality and strength first became fully evident in 2008 under the leadership of its CEO Jamie Dimon. Not only did JP Morgan help to stabilize the market by taking over the failing Bear Stearns in the spring of that year, but throughout the Great Financial Crisis it was the only big US bank that did not require government assistance and it was highly profitable even in the difficult year of 2008.
A well-functioning and efficient bank can be a very good long-term investment, because the interest compounding effect works well here. JPM’s return on equity (ROE) is well into the double digits and this puts it in a good position to continue producing better long-term returns than does the market. JPM has been very profitable even during years when interest rates were close to zero. The current – and perhaps not temporary – return to somewhat more normal, higher interest rates should have a significantly positive impact on the bank’s interest income and overall profitability.”
2. Mastercard Incorporated (NYSE:MA)
Number of Hedge Fund Shareholders: 137
5-Year Dividend Growth Rate: 17.4%
Mastercard Incorporated (NYSE:MA) is the first of the two major credit card companies that close out this list, both of which are also being buoyed by rising rates. Mastercard’s dividend yield is stands at just 0.59%, but with a payout ratio of just 19% and booming earnings, it wouldn’t be surprising to see that top 1% before long.
Mastercard shares are down 11% this year as investors fear the effect that a recession will have on consumer spending, but the results through the mid-point of this year have been anything but worrisome for the company. Mastercard’s Q2 revenue soared by 27% year-over-year on a constant currency basis, hitting $5.5 billion, while its net income for the first half of the year came in at just under $5 billion.
Hedge fund ownership of Mastercard Incorporated (NYSE:MA) has fallen by 13% over the past year, but the company nonetheless ranks as the sixth most popular among hedge funds, which own a combined $15 billion worth of the company’s shares. Charles Akre’s Akre Capital Management owned a larger MA stake as of June 30 than industry titans like Warren Buffett and Ken Fisher, holding 5.86 million shares worth $1.85 billion, with the fund having 14.8% 13F exposure to the stock.
Baron Funds’ Baron Fintech Fund talked about Mastercard Incorporated (NYSE:MA)’s solid payment volumes in the fund’s Q2 2022 investor letter:
“The Fund’s holdings in the Payments and Information Services themes also contributed to relative performance. Within Payments, lower exposure to this lagging theme and outperformance of Mastercard Incorporated (NYSE:MA) added the most value. These global payment networks are viewed as safe havens during market downturns but are also benefiting from resilient payment volumes and a sharp rebound in international travel.”
1. Visa Inc. (NYSE:V)
Number of Hedge Fund Shareholders: 166
5-Year Dividend Growth Rate: 17.8%
Topping the list is Visa Inc. (NYSE:V), which ranks as the fifth most popular stock among hedge funds as of June 30. That’s certainly not due primarily to the company’s dividend, which yields just 0.86%, so there’s a lot to like about Visa as an investment beyond its dividend growth. Visa more than doubled its dividend payments between Q4 2017 and Q4 2022, with the company’s upcoming payment rising by 20% to $0.45.
After growing revenue by 10% in its FY22, Visa’s sales growth is expected to accelerate to 14% in FY23. That pace should continue in the years ahead, with Visa projected to grow revenue and earnings by close to 50% between FY22 and FY26. The overall global credit card market is projected to grow at a CAGR of 7.7% through 2026, which Visa and Mastercard are in a dominant position to capitalize on. With just a 21% payout ratio and burgeoning earnings, Visa should be capable of growing its dividend at a double digit pace for the foreseeable future.
Hedge fund ownership of Visa Inc. (NYSE:V) has jumped by 16% over the past two quarters, vaulting the company into fifth place on the list of most popular stocks among hedge funds. Billionaire investing legends Ken Fisher and Warren Buffett also have large stakes in Visa as of June 30, while Chris Hohn’s TCI Fund Management held the largest stake of 19.9 million shares worth $3.92 billion.
The RiverPark Large Growth Fund bought a small position in Visa Inc. (NYSE:V) during Q3 and is bullish on the industry’s growth potential, as detailed in the fund’s Q3 2022 investor letter:
“We reinitiated a small position in Visa, which we had previously owned for years (selling out of the position at higher levels in February). We continue to believe that the long-term secular growth trend towards digital payments remains intact and has been further enhanced by the COVID crisis. The growth in debit cards, contactless payments, e-commerce, and now, buynow-pay-later (BNPL), are all driving digital payment penetration, and we continue to be impressed with the long-term growth potential of V (and our other payment holdings Mastercard, Adyen, and PayPal).”
For more of the latest stock picks worth considering for your portfolio, check out 10 Best Crude Oil Stocks To Invest In and 11 Best Insurance Stocks That Pay Dividends.
Disclosure: None.
