Dividend stocks are a powerful multiplier. Not only do investors benefit from capital appreciation from the stock but their portfolios are supercharged by the dividend payments increasing total returns.
The best dividend stocks to buy are those that consistently grow the payout. It’s not a one-and-done situation. They raise their payout year after year, compounding and amplifying the effects. It’s like turbo boosting your portfolio’s growth engine.
It is why investors love Dividend Aristocrats and Dividend Kings. These are companies that have increased their dividends for at least 25 years and 50 years, respectively.
Yet, there are other stocks that have solid track records of raising their payouts though just not as long — yet. These dividend growth stocks reward investors through share price increases and rising dividend payouts. Many bolster shareholder returns further by buying back stock.
The following dividend stocks just hiked their payouts and represent some of the best dividend stocks to buy today.
Kroger (KR)
Grocery store giant Kroger (NYSE:KR) recently announced it was raising its payout by 10%. The dividend will grow to $1.28 per share from $1.16 per share. It marks the 18th consecutive annual increase in the payout, which has grown by a compound annual growth rate (CAGR) of 13.5% since the dividend was reinstated in 2006.
Kroger is the largest pure-play supermarket stock with over 2,700 stores. It is in the middle of trying to acquire the Albertsons (NYSE:ACI) chain of supermarkets, though it is being opposed by the Federal Trade Commission (FTC) on antitrust concerns. The regulatory agency is suing the companies to block the merger. Together, the two supermarkets would have around 5,000 stores.
To get around the objections, Kroger and Albertsons have agreed to boost the number of stores they will divest to 579, up from 413. They will sell the locations to C&S Wholesale Grocers, the largest wholesale grocery supply company in the U.S. and the owner of grocery store chains including Piggly Wiggly and Grand Union.
Even if the acquisition fails, Kroger represents a good dividend stock to buy. The stock trades at 11 times earnings estimates and a fraction of its sales. Wall Street expects earnings to triple over the next five years, from a 2.4% CAGR over the last half decade to 8%.
Goldman Sachs (GS)
You can tell it was a good year for financial stocks as numerous banks and investment banking firms were hiking their dividends. Goldman Sachs (NYSE:GS) was one of the best, hiking its payout by 9%.
Other big banking concerns like JPMorgan Chase (NYSE:JPM), Morgan Stanley (NYSE:MS) and Bank of America (NYSE:BAC) all followed suit with increases around 8% or so. One of the disappointments, though, was U.S. Bancorp (NYSE:USB), which only raised its dividend 2%. As that is less than inflation, investors are actually receiving less money than they previously did.
Goldman Sachs is trying to correct the errors of its past ways. Having expanded into consumer-facing finance, it found the business yielded poor returns. The investment banking giant ended up closing down and selling off many of those business. It wants to now just focus on its investment banking, trading and investment management operations.
With analysts forecasting long-term earnings growth of twice the rate it previously did, Goldman Sachs stock is trading at a significant discount. With a 12-year history of raising its payout and a 7.8% CAGR for the past year, the reformed investment bank is a dividend stock worth buying.
Jefferies Financial Group (JEF)
In that same financial services vein is Jefferies Financial Group (NYSE:JEF). But it hiked its dividend by a rather large 16.7%. That should be no surprise to investors. The investment banking firm has increased the payout at a 19% CAGR while over the last five years raised it 22% annually.
JEF earns significant fees from capital markets activities, underwriting, financial advisory and asset management services. It generated $1.7 billion in second-quarter revenues, up 60% year-over-year (YOY). Over the first half of 2024, they are up 46%, indicating just how active the deal-making market has been.
Investment bank and capital markets in particular have seen robust growth with revenue 29% higher this year. Its asset management business had de minimis revenues last year but it generated $430 million from it through the first two quarters of this year.
With corporate merger and acquisition activity set to grow 20% in 2024, according to EY-Parthenon, look for Jefferies Financial Group to gain a good portion of that work that will flow to its bottom line.
Darden Restaurants (DRI)
The owner of Olive Garden and LongHorn Steakhouse is the next dividend stock that generously raised its dividend. Darden Restaurants (NYSE:DRI) increased the payout 6.9% to $1.40 per share from $1.31 per share.
Fiscal 2024 revenue grew 3.5% to almost $3 billion with Olive Garden rising less than 1%, LongHorn Steakhouse up over 7% and its fine dining chains like Ruth’s Chris Steakhouse, Eddie V’s, Seasons 52 and Capital Grille was up 55%. That is distorted a bit because Darden acquired Ruth’s Chris in June 2023. Absent the chain’s inclusion, DRI’s total sales increased 8.6% on a 1.6% rise in same store sales.
Darden Restaurants has paid a dividend every year since 1995 and has steadily increased it every year since 2015. However, during the pandemic when restaurants were forced to close, it did cut the payout. But beginning in 2021 it resumed its regular payments and continued its policy of raising the dividend.
Assuming no global health calamity strikes again, Darden Restaurants is a dividend stock worth buying.
Citigroup (C)
Yet another financial stock was rushing to boost its payout. This time Citigroup (NYSE:C) raised its dividend by 5.7%. The bank is another turnaround play in the financial sector. So far it is successfully exceeding its targets.
Just-reported second-quarter results beat analyst revenue and earnings expectations. Revenue of $20.14 billion was ahead of Wall Street’s forecast of $20.07 billion while earnings of $1.52 per share easily topped estimates of $1.39 per share. Citigroup also benefited strongly from the rebound in Wall Street activity. The bank’s investment banking revenue rocketed 60% higher to $853 million.
Yet, Citigroup is still a work in progress. Only last week, The Federal Reserve rebuked the bank for making insufficient progress on data and risk management. It was fined $60 million. But, it did pass the Fed’s annual stress test, and its required capital buffer was lowered to 4.1% from 4.3%. Citigroup’s common equity Tier 1 ratio, or CET1, capital ratio is 12.1%, which is 13.5% above the regulatory minimums.
Citigroup’s improved financial picture allowed the bank to raise its dividend from 53 cents to 56 cents per share.
Caterpillar (CAT)
Heavy equipment maker Caterpillar (NYSE:CAT) is a rock-solid dividend stock that just increased its payout by 11 cents to $1.41 per share, which is an 8% hike. Also, the company added $20 billion to its stock buyback program, giving it a total of $21.8 billion to repurchase shares. And, CAT said it continues to use virtually all the free cash flow produced by its primary operations for dividends and buybacks.
Caterpillar is a Dividend Aristocrat, having raised its payout for 30 consecutive years. Impressively, it’s made a payment every year since going public in 1933.
Shares are up 13% in 2024 and 32% over the past year, yet the stock has historically been cyclical. You don’t want to buy a cyclical stock at peak earnings because a downturn will inevitably follow. But that could be changing for Caterpillar.
Because its heavy equipment is increasingly used to build alternative energy infrastructure, mine metals needed for electric vehicles and provide equipment for generating electricity used by EVs, Caterpillar’s cyclicality may diminish over time. However, it currently still relies upon more traditional mining and construction activity so it should greatly benefit from the $1.2 trillion infrastructure bill passed in 2021. There remains a long tailwind of growth that will push Caterpillar higher.
Schwab U.S. Dividend Equity ETF (SCHD)
The last stock that hiked its dividend recently is the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD), an exchange-traded fund (ETF) that holds about 100 dividend-paying stocks and yields 3.6% annually. Its dividend was raised by a whopping 35%, from 61 cents per share to 82 cents per share. However, some caveats come with that.
The ETF’s dividends aren’t static but change every quarter. They can also decline, though such instances are rare.
The Schwab U.S. Dividend Equity ETF was created in 2011 with the purpose of tracking the total return of the Dow Jones U.S. Dividend 100 Index. As a result, it has a strong record of dividend growth with payouts expanding by a compound annual rate of 10.5% for the past decade.
As the premiere dividend growth stock to own, its top three holdings are Home Depot (NYSE:HD), Amgen (NASDAQ:AMGN) and BlackRock (NYSE:BLK).
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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