We recently compiled a list of the 12 Best Dividend Stocks For Steady Growth. In this article, we are going to take a look at where Costco Wholesale Corporation (NASDAQ:COST) stands against the other dividend stocks.

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.

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).

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.

Overall COST ranks 3rd on our list of the best dividend stocks for steady growth. While we acknowledge the potential of COST 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 COST but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

READ NEXT: $30 Trillion Opportunity: 15 Best Humanoid Robot Stocks to Buy According to Morgan Stanley and Jim Cramer Says NVIDIA ‘Has Become A Wasteland’.

Disclosure: None. This article is originally published at Insider Monkey.