The stock market, as measured by the S&P 500, keeps hitting new all-time highs. However, not all stocks are taking part. In fact, many more speculative areas such as special purpose acquisition companies (SPACs) and electric vehicles (EVs) have sold off sharply in recent weeks. As a result, investors are looking to play some defense. Dividend stocks are a logical place to turn.
With how fast the economy is booming, though, just buying stodgy companies might not hold much appeal. That’s why it’s worth taking a look at dividend stocks with high growth rates. These are companies that offer both a solid yield and compelling growth rate on that dividend payout going forward.
These seven dividend stocks with growing payouts are the ones to have at the top of your watchlist now:
- Proctor & Gamble (NYSE:PG)
- Broadridge Financial Services (NYSE:BR)
- 3M (NYSE:MMM)
- Nasdaq (NASDAQ:NDAQ)
- Texas Instruments (NASDAQ:TXN)
- American Express (NYSE:AXP)
- Starbucks (NASDAQ:SBUX)
Proctor & Gamble (PG)
We’ll start the list off with a bang. P&G just surprised its investors with a massive dividend hike. Going forward, PG stock will pay out 10% more than it did previously, with the quarterly payment rising from 79 cents to 87 cents.
From a new fast-growing company, a 10% dividend increase might not seem like a major deal. However, for a venerable nearly two-century old company, it’s amazing to increase the dividend this much. You’d have to look back to 2009 for the last time P&G increased its dividend at a double-digit rate in a single year.
Sure, skeptics might say, this is a one-time boost thanks to the boom in sales of household goods with the novel coronavirus pandemic. That’s not wrong. P&G won’t raise the dividend 10% every year. However, it has consistently averaged in the 5% annual increase range in recent years, and that’s still impressive in its own right.
P&G has been in business since the 1830s and has increased its dividend annually for each of the past 64 years. The fact that it is still generating this much additional income for shareholders is amazing, and shows the true appeal of buying and holding blue-chip stocks for the long haul.
Broadridge Financial (BR)
Dividend aristocrats are companies that have increased their dividends for each of the past 25 years or more in a row. The aforementioned P&G, for example, is easily an Aristocrat with its current 64-year streak. Dividend aristocrats tend to earn a premium stock price from the market. There are exchange-traded funds (ETFs) dedicated to aristocrats, and many individual dividend investors prioritize these 66 noteworthy stocks as well.
There’s an intriguing aspect to this. What about companies that are almost dividend aristocrats but just miss the list? Meet Broadridge Financial. Broadridge was spun out of Automatic Data Processing (NYSE:ADP) in the late 2000s. ADP is itself a dividend aristocrat with a dividend hike streak of nearly 50 years. And, every year since Broadridge became its own company, it has increased its dividend. So, I’d say, it’s an aristocrat itself in spirit.
Both ADP and now Broadridge can effortlessly increase their dividends because they serve great niches. ADP, as the name suggests, has automated a great deal of clerical work for countless Fortune 500 companies.
Broadridge has drilled down on that niche specifically for the financial services industry. It has overwhelming market share in proxy services (which is when companies send shareholder communications to investors). Broadridge has now diversified more into software and services for handling brokerage data, wealth management and other adjacent businesses. These are not glamorous services, but they are essential, and tend to grow consistently over time.
Indeed, Broadridge has grown earnings at a double-digit compounded rate over the past decade. In turn, it shares the wealth with its stockholders. Over the past five years, Broadridge has doubled its dividend payout, which amounts to a 14% annualized growth rate. One day, Broadridge will likely join the prestigious dividend aristocrats list proper. Until then, early investors can enjoy this stealth champion dividend stock that is still in its formative years.
Next up, we have a card-carrying member of the dividend aristocrats list: 3M. The industrial goods giant has increased its dividend every year in a row for more than half a century.
Unlike much of the S&P 500, 3M has actually been in a bit of a slump. Shares are still down significantly from their all-time highs back in 2018. However, it appears that 3M is revving back up now; several of the company’s lines of business are benefiting from the economic reopening with the housing boom, in particular, being a positive. The Biden infrastructure plan should also give the company a big boost.
Meanwhile, there’s that dividend. MMM stock is currently paying 3%, which is pretty solid in this market. Plus, the company has averaged 7% annual dividend increases in recent years. That’s not the fastest rate on this list by any means, but when you get a 3% yield right out of the gate, 7% increases are nice. Long story short, MMM stock is a reliable blue chip that has awoken from a recent slump and is enjoying several favorable tailwinds.
When you think of the Nasdaq exchange, you probably don’t think of dividend stocks. After all, the Nasdaq tends to be host to a bunch of emerging growth companies that don’t pay dividends at all. The dividend stocks it does tend to house, such as Apple (NASDAQ:AAPL), often pay yields well below 1% annually. So what is Nasdaq doing here among the dividend stocks increasing their payouts?
In a way, the Nasdaq functions like a casino. It doesn’t matter what sorts of speculative stocks trade on the Nasdaq, the exchange itself always reaps more money as trading activity increases. The recent boom in EVs, SPACs, solar companies and so on is creating a ton of new business for the Nasdaq. While many of those underlying stocks are quite risky, the stock exchange’s own stock, NDAQ, remains a compelling blue chip.
Even with shares up 50% over the past year, the Nasdaq is still going for just 24x earnings. That’s not bad for a company that consistently grows EPS at a double-digit rate. Nasdaq also spreads the wealth with shareholders; it has grown its dividend at a healthy 15%/year over the past five years.
Texas Instruments (TXN)
The tech sector can actually be a decent place to find dividend stocks beyond just the Nasdaq. For example, there’s the globe’s leading analog semiconductor company, Texas Instruments. Texas Instruments wisely avoided the competitive dogfight making fast-changing chips for cell phones and other consumer electronics. There, chips have been a commodity product in many cases, driving down profitability.
Rather, Texas Instruments has focused on analog chips for more niche applications. Because these applications don’t target as broad a market, a patented product can remain on the market for longer, and fewer rivals try to take on the company directly. Texas Instruments has specialized in things such as sensing real-world data such as climatological information and harnessing it for digital applications.
This skill-set is proving particularly useful in automobiles now. Cars need to get a lot smarter, particularly for autonomous driving. Texas Instruments’ chips are invaluable in allowing vehicles to sense their surroundings and make safe and efficient decisions. As the Internet of Things expands, Texas Instruments should find many more such use cases to deploy its analog chipsets.
In any case, Texas Instruments has enjoyed incredibly consistent growth in recent years, defying the usual boom-bust cycle for semiconductor companies. And when you get steadily rising earnings, good things can happen with the dividend. TXN stock yields 2.1%, which is a fine starting offer. Incredibly enough, the company has grown that dividend by 21% a year over the past five years. Meaning that the fair current dividend yield could turn into a gusher within a few years at that rate.
American Express (AXP)
Last year, folks tightened their belts. People stayed at home and curtailed discretionary spending dramatically. 2020 was a time of paying down debt and saving for a rainy day. Needless to say, those weren’t particularly auspicious conditions for credit card companies. To put a number on it, American Express’ revenue saw a 21% year-over-year decline.
2021, however, is shaping up to be something totally different. Consumer spending is roaring back now. That should only accelerate as the summer gets underway and all sorts of travel and recreational activities are back on the menu. AXP stock is benefiting from another factor: improved credit quality. Last year, there was a spike in people not paying their bills on time, for understandable reasons. However, now American Express’ charge-off rate for bad debts has declined by half since March 2020.
Improving credit quality and a resurgence in consumer spending should pave the way for a return to strong profitability for American Express. That, in turn, will fuel more dividend hikes. American Express has averaged 8% annual hikes over the past five years. However, that included a less than 5% dividend increase in the most recent year. That slow year should be offset by a stronger-than-usual increase with the economy back on the upswing.
At first, it looked like Starbucks might struggle with the pandemic. After all, a big part of Starbucks’ appeal is its pleasant sit-down experience as a home away from home. However, Starbucks outperformed expectations in 2020 as its take-out and drive-through businesses shined. The company’s customer loyalty program also helped kept spending high as even demand dropped sharply for many rival cafe concepts.
And having done alright in the downturn, Starbucks is now thriving. The company’s sales were only down 5% last quarter, far ahead of most restaurant peers. Sales are now at the inflection point. For 2021, the company sees same-store sales rising 5% to 10%. If anything, the pandemic may have strengthened Starbuck’s competitive position as many mom and pop rivals had to close up shop last year.
In any case, Starbucks’ continued success leads to stronger dividend payouts as well. Over the past five years, Starbucks has increased its annual dividend payout at a robust 19%/year. Blend with the current 1.6% starting yield, and SBUX stock should deliver more steady growth and income in coming years.
On the date of publication, Ian Bezek held a long position in TXN, BR, and NDAQ stock.
Ian Bezek has written more than 1,000 articles for InvestorPlace.com and Seeking Alpha. He also worked as a Junior Analyst for Kerrisdale Capital, a $300 million New York City-based hedge fund. You can reach him on Twitter at @irbezek.