3 Dividend Growth Stocks to Buy and Hold Forever

Dividend growth stocks buy

Author: Tim Phillips

June 29, 2021

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Long-term investors focused on quality companies don’t always stump for high-growth stocks. They sometimes actually look at companies that pay dividends. The reasons for this are manifold.

Even better, though, are companies that can pay dividends consistently but also grow these dividends at a fast pace. These so-called “dividend growth” stocks offer faster increases in the dividend.

Ideally, they should be trying to grow their dividend in the double-digit percentage range on an annual basis, over a consistent period of time.

A company’s ability to do this relies on faster-than-average growth in revenues and profits. What you have, as an end result, is a fast-growing dividend over the longer term.

In Singapore, that kind of dividend growth is hard to find as investors in the Lion City are more focused on pure “yield” names. However, focusing purely on the yield can be dangerous for our capital.

Ironically, dividend growth stocks should (ideally) have lower yields so that they have space to grow into a higher dividend yield over time.

Here, I thought I’d take that mentality and look three US dividend growth stocks that any long-term investor can buy and hold forever.

1. Lowe’s

Lowe’s Companies Inc (NYSE: LOW) is a large home improvement and DIY retailer in the US. The company is a direct competitor to Home Depot (NYSE: HD), which also provides consumers with similar choice in terms of its product lineup.

Lowe’s has handled the Covid-19 pandemic extremely well by pushing an omni-channel approach that resonated with consumers. For the whole of last year, the company saw revenue jump 24.2% year-on-year to reach US$89.6 billion.

Additionally, that beat Home Depot’s 20% sales growth in 2020. However, it’s on the dividend front that Lowe’s really looks like it’s gaining momentum.

In its latest quarter, the firm raised its dividend by an impressive 33%, reflecting the fact that Lowe’s saw diluted earnings per share (EPS) skyrocket 82% year-on-year to US$3.21.

Over the past five years, Lowe’s has grown its dividend per share (DPS) at a compound annual growth rate (CAGR) of 18.3%.

Finally, with a dividend payout ratio of only 25% in its latest quarter and a current dividend yield of 1.7%, growth in the company’s business (and dividend) look set to keep expanding.

2. Apple

Next up is iPhone behemoth Apple Inc (NASDAQ: AAPL). Many investors may not be aware of this but the tech giant actually pays a dividend.

Although its stock only yields around 0.7% at its current price, the company has been growing its dividend fast.

Apple is a revenue generator of astounding scale. In its latest quarter, Apple saw a March-quarter record in terms of sales with revenue hitting US$89.6 billion – up a whopping 54% year-on-year.

That also allowed Apple to increase its dividend by 7%, with its DPS coming in at US$0.22. Even though it only pays out around 16% of its earnings in dividends, it does leave Apple with a lot more room to grow its dividend in future.

In terms of the growth of Apple’s dividend, it has grown its DPS from a split-adjusted US$0.57 in FY 2016 to US$0.88 in FY 2021, meaning the five-year CAGR of its dividend is 9.1%.

3. NextEra Energy

Finally, we have NextEra Energy (NYSE: NEE), a renewable energy provider. The company is also the world’s largest producer of wind and solar energy.

Based in Florida, the company’s share price alone has increased by 132% in just the past five years alone while over the past decade its shares are up 430%.

In addition to its impressive price returns, there has also been a focus on its growing dividend. In the latest quarter, NextEra Energy saw its adjusted EPS rise by 14% year-on-year.

Structurally, as the world moves towards renewable energy, and away from dirty fossil fuels, the stock also provides a great long-term narrative for people who are willing to be patient.

That’s mainly down to the fact that NextEra is a market leader on both the wind- and solar-generating fronts via its two electric utilities in Florida.

The dividend has backed this up. Although shares currently yield only 2.0%, its DPS has grown from US$0.87 in 2015 to US$1.40 in 2020 – meaning over the five-year period its dividend’s CAGR was 10.0%.

Buying quality

Like high-growth stocks, buying quality companies will ensure that dividends generated are sustainable and not prone to collapsing.

Lowe’s, Apple and NextEra Energy are all solid companies that have significant growth ahead in both their businesses and dividends.

If long-term investors hold these stocks for years to come, they should continue to see rising dividends far into the future.

Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of Lowe’s Companies Inc and NextEra Energy.

About the Author: Tim Phillips

Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth. He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be. In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.