Investing in dividend growth stocks is a slow and steady way to build wealth. Stocks characterized by this investing style will raise their dividends annually but also typically experience a rising share price. This makes for a powerful combination that adds to wealth annually.
We highlight three companies with high dividend growth rates over five- and 10-year periods. Two of the three equities are Dividend Kings, while one is a Dividend Contender. The firms clearly prioritize investors, making them all-around solid buys for those looking to build their wealth.
Lowe’s (LOW)
Lowe’s (NYSE:LOW) is one of the leading high dividend growth stocks. Some people find this fact surprising because the firm is also a 2024 Dividend King, a company that has increased its dividend for 50-plus years and is over 100 years old. A mature company usually does not have high dividend growth.
Lowe’s has been successful because it locates stores conveniently where demand is presumably high. Older homes need upkeep, remodeling, and renovation. New homes need paint, landscaping, and personal touches. Revenue and earnings per share typically increase annually by selling more items, raising prices, and opening more stores. Lowe’s operates over 1,700 stores in the United States, leaving room for expansion.
The home retailer is a favorite with investors when it comes to dividend growth combined with price appreciation. It is a Dividend King with a 62-year streak of yearly increases, one of the few companies reaching the six-decade threshold. It last raised the dividend at the end of May 2023. Investors should expect another increase soon. The dividend growth rate has been roughly 20% over the past decade. We expect a lower increase this year because EPS may decline, but we anticipate higher growth rates when revenue and earnings per share rebound.
Consensus calls for earnings to fall in 2024 and possibly 2025, but the firm should return to growth as inflation and interest rates fall. We view Lowe’s as a long-term buy. It currently boasts a dividend yield of nearly 2%, more than the 5-year average of 1.8%. This yield is backed by a modest payout ratio of approximately 33%. An A+ dividend quality grade and BBB+/Baa1 investment-grade credit rating boost dividend safety.
UFP Industries (UFPI)
UFP Industries (NASDAQ:UFPI) is a much smaller company, but its dividend growth rate is even more impressive than Lowe’s. Most people probably have not heard about the business. It has a nearly 70-year history selling wood and other products to the housing industry. It was previously known as Universal Forest Products. Today, the business operates in eight countries through three segments: UFP Retail Solutions, UFP Construction, and UFP Packaging. Total revenue reached $7.2 billion in 2023.
UFPI is on the list of Dividend Contenders with a 12-year streak of increases. The share price has declined this year because of lower sales. Revenue peaked in 2022 at over $9.6 billion. The dividend yield is only 1.1%, slightly greater than the 5-year average. The dividend growth rate is outstanding at over 25% for the trailing five years. The meager payout ratio of 13.6% indicates more increases to come. However, because revenue and earnings are expected to decline in 2024 and 2025, the increases may be subdued until the trend reverses.
The payout ratio suggests that the dividend safety is simply outstanding. Free cash flow of $780 million covers the dividend requirement of $68 million in 2023. UFPI also has a BBB+/Baa1 investment credit rating.
UFPI’s struggling share price makes it attractive because it trades only at 15.6 times forward earnings. This is a reasonable value within the five- and 10-year ranges. As a result, we view this equity as a buy.
Nordson (NDSN)
Nordson (NASDAQ:NDSN) is another Dividend King. However, it is not well-known even though its market capitalization exceeds $13 billion. Besides being a member of the Dividend Kings, the equity is known for its higher dividend growth rate.
The company designs, manufactures, and sells systems and products to dispense fluids, like adhesives, coatings, polymers and sealants. It has three operating segments: Industrial Precision Solutions, Medical and Fluid Solutions, and Advanced Technology Solutions. Total revenue was $2.65 billion in the last 12 months.
Nordson has a 61-year streak of increasing its dividend, and has a 10-year dividend growth rate near 15%. Moreover, the low payout ratio of 29.5% suggests many more future increases. Earnings are predicted to rise in the next three years, and we expect another solid dividend increase in August 2024.
One negative about Nordson is the low yield of 1.1%, which likely keeps this stock off an income investor’s radar. However, Nordson earns an A+ dividend quality grade, meaning it’s in the 95th percentile of dividend-paying stocks. It also has a BBB/Baa2 investment-grade credit rating, giving investors greater confidence about its safety.
We view Nordson as a buy because of its dividend growth, safety, streak, and acceptable valuation.
On the date of publication, Prakash Kolli held a LONG position in LOW. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
