The start of a new year marks the perfect timing to explore investment predictions. As we enter a new tax year, it’s also a crucial period for evaluating and adjusting investment portfolios. The early months of the year can prompt decisions to capitalize on gains and optimize the alignment of holdings with long-term financial goals.
One investor decided to trade out of positions in Cummins (CMI) and Digital Realty Trust (DLR) in light of a legal issue and valuation concerns, respectively. This shift resulted in gains of 10% and 170% from the respective positions. Further decision-making is underway, with additional potential divestitures planned to bolster the investor’s portfolio.
January represents an opportunity to fortify portfolios, ensuring they are well-positioned to meet financial objectives throughout the year. The emphasis is on ensuring that the equity allocation is optimized to yield long-term benefits, even in a period of high yields from money market funds.
While periods of high yields from cash investments present attractive prospects, the investor remains committed to maintaining an equity allocation to avoid missing out on potential gains. The cost of remaining on the sidelines, despite the allure of “risk-free” rates, is deemed too significant when viewed through a long-term lens.
With a focus on future growth, the investor dedicated time to curate a list of the 25 highest conviction dividend growth stocks for 2024.
The Significance of Dividend Growth
Before unveiling the list of identified stocks, it’s essential to emphasize a few key points. While there are no guarantees in equity dividends or any assurance of double-digit raises in 2023 or even the payment of dividends, the investor places heavy reliance on dividends as a key component of their financial freedom strategy. The predictable nature of dividends, particularly those with a consistent growth trajectory, offers a level of stability amid short-term market volatility and irrational fluctuations.
Reliable dividend growth requires a strong foundation built on fundamentals such as increasing sales, earnings, and cash flows, along with stable or expanding margins, conservative balance sheets, and a firm commitment to shareholder returns by management. The sustainability of dividends over extended periods is closely tied to these fundamental metrics.
Curating the List
The compilation of the list of high-conviction dividend growth stocks for 2024 was meticulously executed, utilizing an assessment of each company’s current fundamentals, future guidance and expectations, and historical performance. The resulting selection represents 25 stocks expected to deliver substantial raises to their shareholders throughout the year.
It’s important to note that while these stocks are strong candidates for double-digit raises, they may not be the only companies poised to achieve this feat. Countless high-quality dividend growers populate the investor’s portfolio management strategy. The potential for unanticipated outperformance from stocks not included in the list remains a distinct possibility, adding an element of unpredictability to the investment landscape.
Despite the omission of certain companies due to slowing growth or near-term obstacles, the investor remains open to pleasant surprises, acknowledging the appeal of unexpected dividend increases in the market.
The Anticipated Selection
The roster of highest conviction, double-digit dividend growth stocks for 2024 encompasses a diverse range of companies with promising potential for dividend increases. The investor’s careful evaluation and unique insights have resulted in the identification of stocks such as UnitedHealth Group (UNH), MSCI Inc. (MSCI), Microsoft (MSFT), Accenture (ACN), and Moody’s (MCO) as prime candidates for robust dividend growth in the upcoming year.
|
Company (Ticker) |
Dividend Yield |
5-year DGR |
5-year Total Return CAGR (dividends reinvested) |
2023 Increase |
2024 Increase Estimate |
Annual Increase Streak |
The Quest for High Dividend Growth Stocks
| Company | Dividend Yield | 5-Year Dividend Growth Rate | 5-Year Dividend CAGR | 5-Year Total Return CAGR | Payout Ratio | Years of Dividend Growth |
|---|---|---|---|---|---|---|
| Visa (V) | 0.79% | 16.27% | 12.8% | 15.6% | 13-16% | 15 years |
| Mastercard (MA) | 0.62% | 17.02% | 18.3% | 15.8% | 14-17% | 12 years |
| ASML Holding (ASML) | 0.90% | 30.72% | 36.9% | n/a | 10%+ | 0 years |
| FedEx (FDX) | 2.03% | 15.01% | 1.3% | 9.6% | 9-12% | 3 years |
| Marsh & McLennan Companies (MMC) | 1.45% | 17.42% | 17.2% | 20.3% | 10-13% | 14 years |
| Linde (LIN) | 1.25% | 9.50% | 18.7% | 9.0% | 9-12% | 31 years |
| Zoetis (ZTS) | 0.87% | 25.44% | 19.3% | 15.0% | 10-13% | 12 years |
| Domino’s Pizza (DPZ) | 1.18% | 17.08% | 13.8% | 10.0% | 9-12% | 11 years |
| Rexford Industrial (REXR) | 2.76% | 18.89% | 13.6% | 20.6% | 14-17% | 10 years |
| Roper Technologies (ROP) | 0.56% | 10.48% | 12.8% | 9.9% | 9-12% | 31 years |
| Automatic Data Processing (ADP) | 2.37% | 12.96% | 13.1% | 12.0% | 10-13% | 48 years |
| Oracle (ORCL) | 1.50% | 16.05% | 17.4% | 25.0% | 8-11% | 15 years |
| Intuit (INTU) | 0.59% | 14.33% | 23.0% | 15.4% | 12-15% | 13 years |
| Broadridge Financial Solutions (BR) | 1.58% | 12.40% | 12.4% | 10.3% | 9-12% | 17 years |
| Costco (COST) | 0.60% | 12.37% | 24.3% | 13.3% | 10-13% | 20 years |
| Nike (NKE) | 1.41% | 11.13% | 7.9% | 8.8% | 9-12% | 21 years |
| Broadcom (AVGO) | 1.90% | 19.25% | 41.00% | 14.1% | 10-13% | 14 years |
| Eli Lilly (LLY) | 0.81% | 14.97% | 43.2% | 15.0% | 15-18% | 10 years |
| Booz Allen Hamilton (BAH) | 1.46% | 19.86% | 25.1% | 9.3% | 9-12% | 12 years |
| Parker Hannifin (PH) | 1.29% | 14.44% | 23.5% | 11.3% | 8-11% | 67 years |
What To Look For When Identifying High Dividend Growth Stocks
Scouring through this list, you’ll note the commonalities these stocks share.
Firstly, their yields are generally low.
This aligns with the inverse relationship between growth prospects and dividend yields in the market.
To achieve high dividend growth, a company must exhibit strong fundamental growth, for which the market is willing to pay a premium.
However, this is not detrimental to their total return profiles.
Almost all these companies boast 5-year dividend growth rates above 10%, with equally impressive 5-year total return CAGRs.
This correlation is no mere coincidence. The same fundamental growth driving one also drives the other. Hence, safe and sustainable dividend growth metrics remain paramount.
Yes, these stocks trade at a premium, but looking at their trailing 5-year total return CAGRs, all but two have delivered double-digit total returns.
Importantly, these companies did not trade cheaply 5 years ago either. Examining long-term valuation charts reveals that they traded at a premium to the market even back then.
While there has been multiple expansion during the recent bull market run, the fundamental growth they’ve produced has outweighed any short-term valuation premiums, propelling share prices higher.
This should come as no surprise. It resonates with the principle driving my market decisions: high-quality compounders drive returns.
I always prefer fundamental growth to propel capital appreciation over multiple expansion through mean reversion, typical of value-oriented trades.
The market can prolong low valuations irrationally. Sometimes, deep value plays are justified, and beaten-down companies stay down for valid reasons. By avoiding deep value trades, I steer clear of broken companies.
Lastly, it’s noteworthy that nearly all these stocks have decade-long dividend increase streaks.
While this is not the sole metric when hunting for dividend growth winners, it’s a solid starting point.
What’s in the past may not affect future growth trajectories, but with blue chips like these, a history of excellence reflects a corporate culture primed for success.
A few names on this list have brief annual increase streaks, but every enduring dividend growth story starts somewhere. Companies with solid fundamental growth are unlikely to falter soon.
The Power of Long-Term Growth in Dividend Stocks
Do you think it’s a coincidence that we’re looking at so many strong increase streaks here?
Each of these companies has carved out a strong competitive moat over the years with notable brands and robust demand for their products and services.
That leads to financial success, which can be reinvested into human and intellectual capital, creating a virtuous cycle of success.
And you don’t have to take my word for it.
Here’s another chart showing the consensus forward-looking growth prospects for each stock on this list.
Diving into the Data
|
Company (Ticker) |
2023 EPS Growth actual/estimate |
2024 EPS Growth Estimate |
2025 EPS Growth Estimate |
Forward Payout Ratio |
|
UnitedHealth Group (UNH) |
13% |
11% |
13% |
27.0% |
Once again, the data set isn’t perfect, but as you can see, every company has positive bottom-line growth estimates during 2024 and 2025 (with the vast majority of these consensus annual growth figures coming in above the 10% threshold).
Rethinking Dividend Growth
And not only are the future dividend growth prospects so rosy for the companies on this list because of their strong fundamental outlooks, but also, their relatively low payout ratios.
Even if they posted flat bottom-line results for a year or two, just about every company on this list could comfortably increase their dividend without putting a lot of strain on their cash flows.
Only two out of the twenty-five companies that I’m highlighting here have forward payout ratios above 50%. And one of them is a REIT, so that’s to be expected.
Frankly, it’s amazing that these stocks can have such low payout ratios after such long periods of strong dividend growth.
This just goes to show the strength of their businesses which have exhibited the ability to adapt, evolve, and ultimately, grow over time.
Embracing Long-Term Mindset
I think it also shows a conservative, long-term mindset by management, which provides me peace of mind. I want to own companies that are being run with success 10, 20, 50 years, etc., into the future in mind.
Sure, there’s an argument to be made that each of these companies could increase their dividends significantly, providing shareholders with much higher yields in the present.
But at what cost?
In Conclusion
The answer here is a fairly simple one: the capex, R&D, and M&A that is required to properly maintain (and expand) moats over time.
Give me a well-run company with the prospects for sustainable 10%+ dividend growth over the coming years (and decades) over a high yield with quality/growth concerns in the present, every time.
Managing a company for success years down the road, not just the next quarterly report, is what separates blue chips from wanna-be’s in the market.
That’s what generates long-term outperformance. That’s what generates life-changing returns and generational wealth. And therefore, predictable, reliable fundamental/dividend growth will continue to be my focus in 2024 as opposed to chasing high yields or bottom-fishing for deep value stocks.
Now, I just have to be disciplined and patient enough to watch these rapid compounders closely so that I can capitalize on any dips that drive their share prices down below my personal buy targets.
Happy hunting, everyone!
Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
