Top Dividend Stocks to Watch for Long-Term Wealth Building
Investing in dividend-paying stocks requires a careful approach to identify companies with solid payout ratios and consistent dividend increases. By focusing on these values, investors can enjoy growing income and the potential rise in stock prices over time.
Research shows that stocks with specific dividend traits often yield higher total returns over long periods compared to other investments. Investors should look for payout ratios below 75% and annualized dividend growth rates above 6% over five years.
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Three well-established dividend payers meet these key criteria, making them worth your investment consideration. Let’s explore these compelling dividend growth stocks.
Microsoft: A Tech Giant in Transition
Microsoft (NASDAQ: MSFT) has evolved into a diverse technology leader, expanding beyond software into significant cloud computing with Azure. This shift has unlocked fresh growth possibilities and enhanced its standing in enterprise technology.
With a modest 0.77% dividend yield, Microsoft’s growth story is remarkable. Over the past five years, it has raised its payouts by 10.3% annually while keeping its payout ratio at a low 24.7%.
Microsoft shares carry a forward price-to-earnings (P/E) ratio of 32.5, notably higher than the S&P 500 average of 23.6. This premium reflects its significant cloud-computing potential and investment in artificial intelligence (AI).
The company’s cloud leadership and strong balance sheet make it an excellent choice for dividend growth investors.
Mastercard: Global Leader in Digital Payments
Mastercard (NYSE: MA) stands out as one of the world’s largest payment networks, thriving amid the ongoing shift towards digital transactions. Its strong brand and infrastructure create a competitive edge in the payments industry.
Mastercard offers a 0.58% dividend yield, emphasizing long-term growth over immediate income. The company boasts a five-year annualized dividend growth rate of 14.5%, one of the highest in its sector, with a lean payout ratio of 19.3% allowing space for future increases.
Although its stock trades at a higher forward P/E of 32.3, this valuation is justified by Mastercard’s strong position alongside Visa and the continuous transition from cash to digital payments, offering significant growth potential.
Lockheed Martin: Defense Contracting Powerhouse
Lockheed Martin Corporation (NYSE: LMT) is the leading defense contractor in the United States, poised to benefit from rising global defense expenditure. Its expertise in advanced military and space technologies supports this promising outlook.
Lockheed Martin provides a 2.69% dividend yield and 7.21% annualized dividend growth rate over the past five years. With a payout ratio of 45.6%, it retains enough earnings to invest in critical areas like hypersonics and space systems while still having the capacity for dividend increases.
Trading at just 17.2 times forward earnings, Lockheed Martin appears undervalued relative to the S&P 500, supporting its role as a stable investment given its long-term government contracts and leadership in defense technology.
Quality Matters: The Case for These Three Dividend Stocks
Effective dividend growth investing focuses on selecting quality companies and systematically adding shares. Microsoft, Mastercard, and Lockheed Martin each exemplify this approach, making them strong contenders.
Each company boasts strengths like solid market positions, strong financial performance, clear growth paths, and committed management teams with well-structured dividend plans. This combination makes these stocks appealing to dividend growth investors.
Should $1,000 Go into Microsoft Now?
Before you invest in Microsoft, consider the following:
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For example, when Nvidia was also recommended back on April 15, 2005, a $1,000 investment would now be valued at $843,960!
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George Budwell has positions in Lockheed Martin, Microsoft, and Visa. The Motley Fool has positions in and recommends Mastercard, Microsoft, and Visa. The Motley Fool recommends Lockheed Martin and recommends the following options: long January 2025 $370 calls on Mastercard, long January 2026 $395 calls on Microsoft, short January 2025 $380 calls on Mastercard, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.