The 9 Best Dividend Growth Stocks to Buy

Extra Space Storage

• Market value: $23.4 billion
• Dividend yield: 3.6%
• Two-year estimated dividend growth rate: 18%

Extra Space Storage (EXR (opens in new tab), $166.31) is a Utah-based real estate investment trust (REIT) that owns or manages 2,327 self-storage properties and 175 million square feet of storage space across the U.S.

In early January, Raymond James analysts upgraded the REIT to Outperform from Market Perform, the equivalents of Buy and Hold, respectively.

"EXR is a fantastic company with a management team that has a proven track record of prudent capital allocation and value creation, and we believe the relative valuation discount does not fully-reflect EXR's blue-chip status," the analysts stated in their report to clients. The analysts admit that tough year-over-year revenue comparisons in the first half of this year present the "largest risk" to their update, but believe those concerns are already priced into the stock.

In EXR's Q3 2022 report, its core funds from operations (FFO) – a key earnings metric for REITs – were $2.21 a share, 19% higher year-over-year. And Extra Space's same-store revenue increased 15.5% during the third quarter to $372 million from $322 million a year earlier.

The company has big expansion plans that will help boost its financial metrics. In September 2022, for instance, the REIT acquired Storage Express for $590 million, which included the issue of 619,294 operating partnership units valued at $120 million. The Indiana-based company has 106 operating units and eight parcels of land in Indiana, Illinois, Kentucky and Ohio.   

Including the acquisition and its joint venture investment, Extra Space acquired or developed 186 locations in 2022 for a total investment of $1.47 billion. 

The REIT is already one of the best dividend growth stocks around. It currently has a quarterly dividend of $1.50 per share after issuing a 25 cents-per-share (20%) increase with the March 2022 payment. Its annualized payout of $6 yields a healthy 3.6%.

Over the past 10 years, EXR has delivered a cumulative total return (price plus dividends) of more than 300%. That's partly due to a dividend that's nearly doubled over the past five years.

Kimco Realty

• Market value: $13.7 billion
• Dividend yield: 4.1%
• Two-year estimated dividend growth rate: 18.6%

Founded in 1958, Kimco Realty (KIM (opens in new tab), $22.16) is North America's largest publicly traded owner and operator of open-air, grocery-anchored shopping centers with 526 U.S. properties providing 91 million square feet of gross leasable space. Structured as a REIT, it's been publicly traded since 1991.

Kimco's stock could become more popular with investors in the future because of a decision it took in December. The REIT announced that it would undergo a reorganization to create a new holding company ("New Kimco") named Kimco Realty Corporation. At the same time, the current company ("Old Kimco") will be converted to a limited liability firm named Kimco Realty OP LLC.

Long story short, New Kimco will control Old Kimco, the operating partnership, enabling it to acquire properties tax-deferred from interested sellers. Often, sellers prefer to defer taxes on the sale by contributing the assets to an operating partnership in return for membership interests rather than cash.

"We believe this reorganization will have no material impact on our existing shareholders, debt security holders, lenders or other constituencies, and will represent an enhanced platform for Kimco's continued growth," stated Kimco's Dec. 15 press release (opens in new tab).

Another positive for investors is an upcoming infusion of cash from Kroger's (KR (opens in new tab)) $24.6 billion buyout of Albertsons (ACI (opens in new tab)). This includes the assumption of $4.7 billion of debt. In addition, the deal called for Albertsons to pay a $4 billion special dividend to its shareholders on Nov. 7. While this was initially delayed by the court, the issue has since been resolved, and Albertsons will go ahead and make the special dividend payment.

Before the merger announcement, Kimco owned 39.8 million shares of Albertson. It sold 11.5 million after the announcement of net proceeds of $301.1 million. It has agreed not to sell any of the remaining 28.3 million shares for at least seven months. Based on its current position and the $6.85 per share special dividend ACI will pay out to stakeholders, KIM is set to receive gross proceeds of $1.16 billion on this last tranche of shares.

The monetization of its Albertson stake should help drive future growth in Kimco's funds from operations leading to higher dividend payouts. It could also keep KIM among Wall Street's best dividend growth stocks.

Diamondback Energy

• Market value: $26.1 billion
• Dividend yield: 6.2%
• Two-year estimated dividend growth rate: 29.6%

If you're a Diamondback Energy (FANG (opens in new tab), $144.296) shareholder, you're probably (somewhat) disappointed with its performance over the past year. It has a total return of 23.3%, well below the 31.7% return of the U.S. oil and gas industry. The energy stock has also underperformed over the past three years, up 28.2% vs. the 30.7% total return for the industry.

Off the price charts, it's been a busy couple of months for the independent oil and gas producer that operates in the Permian Basin of West Texas.

In October 2022, the company announced the acquisition of FireBird Energy LLC, which operates right next door to Diamondback properties in the Permian Basin, for $1.6 billion in cash and stock to acquire the company. FireBird brings with it 75,000 acres of land and an estimated 2023 production of 25,000 barrels of oil equivalent per day (boe/d). The transaction closed at the end of November.

Then, on Dec. 19, the company's stock was to the Nasdaq-100, an index that features the 100 largest non-financial companies by market cap listed on the Nasdaq Exchange.

As for its financial results, Diamondback reported third-quarter net income of $1.18 billion, 82% higher than a year earlier. FANG also produced 390,600 boe/d in the quarter. For all of 2022, it expects production to be between 385,000 and 386,000 boe/d.  

The company continues to generate tremendous free cash flow – the money left over after covering capital expenditures needed to grow its business – prompting it to further enhance its capital return program for shareholders. In Q3, FANG's adjusted free cash flow was $1.17 billion, 57% higher year-over-year. 

As a result, it paid a base cash dividend of $0.75 on Nov. 25 and a variable cash dividend of $1.51 a share. Diamondback, until further notice, plans to return 75% of its free cash flow to shareholders through dividends and share repurchases.

The combined dividend of $9.04 annually yields 6.2% at current prices. In addition, it will continue to repurchase its shares under its $4 billion stock buyback program. To date, it's repurchased $1.22 billion under its latest program.

If you're income-focused, Diamondback is one of the best dividend growth stocks to play the ongoing oil and gas boom.

Marathon Oil

• Market value: $16.9 billion
• Dividend yield: 1.5%
• Two-year estimated dividend growth rate: 47.2%

Marathon Oil (MRO (opens in new tab), $26.60) is another energy company that's expanding through M&A activity. In November, MRO announced it would pay $3.0 billion to acquire Ensign Natural Resources' Eagle Ford assets. The acquisition doubles the company's position in the Eagle Ford basin. Further, it's a purchase of assets that present immediate gains in earnings, while also providing future development opportunities.

"The transaction is immediately and significantly accretive to Marathon Oil's key financial metrics, expected to drive a 17% increase to 2023 operating cash flow and a 15% increase to free cash flow," the company's press release stated.

MRO is already flush with cash. According to its Q3 2022 presentation (opens in new tab), it expects to generate an adjusted free cash flow of $4.1 billion in 2022. That's a free cash flow yield of almost 23%. Based on this free cash flow yield, Marathon is a top value stock.

As for its place on this list of best dividend growth stocks, the company announced in late January that it is hiking its quarterly payout by 11%.

"This marks the seventh increase to our base dividend in the last two years, representing a cumulative increase of over 230% since the beginning of 2021, fully consistent with the strength of our portfolio and our commitment to pay a competitive and sustainable base dividend to our shareholders." said CEO Lee Tillman in the company's press release (opens in new tab).

Analysts are generally optimistic about Marathon's oil and gas business in 2023. In a late-January update, Susquehanna Financial Group named Marathon one of its three favorite exploration and production companies. One of its other favorites is Diamondback Energy, which we discussed earlier.

Charles Schwab

• Market value: $150.5 billion
• Dividend yield: 1.2%
• Two-year estimated dividend growth rate: 47.6%

Goldman Sachs analyst Alexander Blostein upgraded Charles Schwab (SCHW (opens in new tab), $80.61) in early January to Buy from Neutral with a target price of $98, significantly higher than its current share price.

The analyst believes that the deposit balances of Schwab's clients should bottom by the middle of 2023, leading to rebounding earnings in the second half of this year. As a result, Blostein is projecting 15% earnings growth in 2023 and a whopping 32% in 2024.

On Jan. 14, Schwab gave dividend investors a reason to cheer: It increased its quarterly dividend by 14% to 25 cents a share. The $1 annual payment yields 1.3%. That is admittedly not the highest among the dividend growth stocks featured here, but given SCHW's solid fundamentals and commitment to dividend hikes, it's likely to keep increasing.

In mid-January, Schwab announced full-year 2022 earnings per share (EPS) of $3.90, up 20% from a year earlier. Its annual revenues were $20.8 billion, a 12% improvement over 2021. "Although 2022 unfolded much differently than we and many others anticipated at the start of the year, Schwab's unwavering focus on serving clients, along with our all-weather business model, delivered another year of record financial performance," said Peter Crawford, chief financial officer at Charles Schwab, in the company's Q4 2022 press release. 

In late January, UBS Global Research analyst Brennan Hawken reiterated a Buy rating on UBS, saying the financial firm's "capital return story appears on track," with a dividend hike and commitment to stock buybacks. "SCHW has one of the strongest franchises in Financials with minimal credit risk and a path to multi-year rate tailwinds."

Schwab also announced the acquisition of The Family Wealth Alliance last month. The provider of resources and services to single and multifamily offices was founded in 2003. It "is a remarkable organization that has curated a thriving member community while also making a significant impact on the ultra-high net worth space and the firms who serve this market," said Jon Beatty, chief operating officer of Schwab Advisor Services.

No terms were disclosed.

Mosaic

• Market value: $17.0 billion
• Dividend yield: 1.6%
• Two-year estimated dividend growth rate: 55%

Mosaic (MOS (opens in new tab), $50.01) is the world's leading producer of concentrated phosphate and potash crop nutrients.

On Dec. 6, 2022, Mosaic announced that it had temporarily curtailed production at its Colonsay potash mine in Saskatchewan. At the time, it produced approximately 1.3 million tonnes annually, with plans to up that to as high as 2.0 million.

"Our decision to temporarily curtail Colonsay reflects near-term dynamics and not long-term agricultural market fundamentals. Crop prices remain strong and continue to support healthy grower economics," said Mosaic CEO Joc O'Rourke in a press release. "After a year of reduced applications, we believe farmers are incentivized to maximize yields, which should drive significant recovery in fertilizer demand in 2023."

More recently, Mosaic said that it will err on the side of caution when opening up the mine to avoid starting it up prematurely, only to have shut it down again. As of the end of January, production remained paused.

As for its financials, the company generated $2.8 billion in revenue in October and November combined. Broken down by segment, potash and phosphates accounted for 56% of sales, with the remaining 44% coming from Mosaic Fertilizantes. This division consists of the assets Mosaic acquired in 2018 from its purchase of Vale's (VALE (opens in new tab)) fertilizer business, along with its legacy South American distribution business.

In the first nine months of 2022 ended Sept. 30, Mosaic generated record revenue of $14.6 billion, 72% higher than a year earlier. In addition, its operating profit was $4.1 billion, up 172%.

Mosaic returned $1.8 billion to shareholders in the first nine months of 2022. That was 96% of its free cash flow and 58% of its net income. It intends to return 100% of its net income for all of 2022 through share repurchases (75%) and dividends (25%).

In January, BofA Securities issued a report recommending one stock from 11 sectors. Mosaic was its pick among materials stocks. BofA's 11 stock picks in 2022 lost an average of 9.6%, 850 basis points higher than the S&P 500. (A basis point = 0.01%.)

Howmet Aerospace

• Market value: $16.9 billion
• Dividend yield: 0.4%
• Two-year estimated dividend growth rate: 100%

The 16 analysts who cover Howmet Aerospace (HWM (opens in new tab), $40.86) that are tracked by S&P Global Market Intelligence are very high on the producer of engineered metal products. Eight say it's a Strong Buy, four call it a Buy and just two have it at Hold. 

Aerospace stocks, in general, are very popular with analysts at the moment. As a result, the buy-rating ratios of Aerospace suppliers are generally in the 70%-81% range. By comparison, the S&P 500 buy-rating ratio is 58%.

One of the big reasons for the optimism is that international air traffic is still down from pre-pandemic norms. In November, it was off by 25% from November 2019. As a result, companies like Howmet should benefit from higher orders as consumers get more comfortable with traveling.

Wells Fargo analysts recently discussed why they are positive on commercial aerospace companies like Howmet and Boeing (BA (opens in new tab)) in early 2023. Howmet supplies Boeing with aircraft parts for the aircraft manufacturer's 737 MAX, and production for this popular aircraft is increasing. Further, the reopening of China should help boost revenue for both companies.

"We are also positive on HWM, where the company's outlook for 10% sales growth in 2023 appears achievable, even with a likely modest headwind from lower metal pass-through," Wells Fargo analysts stated in their Jan. 11 morning call highlights.

Howmet's outlook for all of 2022 is encouraging. When the company announced its Q3 2022 results in October, it said it would generate at least $520 million in free cash flow from $5.6 billion in revenue.

"[W]e continue to expect the commercial aerospace end market to grow at above-trend rates for the next several years. Howmet Aerospace's defense aerospace market should also return to growth starting in the middle of 2023. We expect 2023 revenue growth versus 2022 to be up approximately 10%, plus or minus 2%," Howmet Executive Chairman John Plant said in its Q3 2022 press release (opens in new tab).

As for HWM's place on this list of the best dividend growth stocks: S&P Global Market Intelligence's two-year dividends per share growth estimate is 100.0%, while its two-year revenue growth estimate is 11.3%.

Ingersoll Rand

• Market value: $23.2 billion
• Dividend yield: 0.1%
• Two-year estimated dividend growth rate: 118.9%

Ingersoll Rand (IR (opens in new tab), $57.38) has its hands in many pies. The industrial stock has more than 40 market-leading brands that provide products and services to many industries through two operating segments: Industrial Technologies and Services (ITS) and Precision and Science Technologies (PST).

The analyst community likes Ingersoll because it does a good job buying smaller companies and successfully integrating them into the larger entity, generating compounding earnings over the long haul. In the third quarter, it announced six bolt-on acquisitions.

After the end of the third quarter, Ingersoll announced it had acquired SPX Flow's Air Treatment business for $525 million. The air treatment unit is expected to generate $180 million in 2022 revenue. The company's brands include Hankison, Pneumatic Products and Deltech. The acquisition closed on Jan. 3.  

"The acquisition of SPX Flow's Air Treatment Business adds a leading manufacturer of energy-efficient desiccant and refrigerated dryers, filtration systems, and purifiers for dehydration in compressed air systems," wrote Jefferies analysts (Buy) in a Jan. 3 research report. "The business will complement IR's leading position in the compressed air market and enables the company to offer more innovative solutions and expands its product offerings to a broader market." 

Ingersoll tried to buy all of SFX Flow last summer for $3.7 billion, but was outbid by private equity firm Lone Star Funds. 

The company announced in September 2021 that it would initiate a quarterly dividend as part of its capital allocation strategy. Starting with the December 2021 payment, it began paying 2 cents a share on a quarterly basis. And Wall Street expects IR to be one of the best dividend growth stocks, targeting a 118.9% increase in its payout over the next two years.

"With the demonstrated ability to generate free cash flow and nearly $2 billion in proceeds from recent divestitures, the company is focused on deploying capital to continue its transformation to a high growth and margin portfolio powered primarily through organic investments and an M&A focused capital allocation strategy," the company stated in its press release announcing its new capital allocation plan.

Progressive

• Market value: $81.1 billion
• Dividend yield: 0.3%
• Two-year estimated dividend growth rate: 207%*

Progressive's (PGR (opens in new tab), $138.70) history dates back to 1937 when Joseph Lewis and Jack Green started the Progressive Mutual Insurance Company in Cleveland, Ohio. It specialized in auto insurance. Progressive went public in 1971. The rest is history.

Today, it's the third-largest U.S. insurance company in the private passenger auto market by premiums written. Progressive and 15 other companies account for 83% of the private passenger auto market.

This market accounts for 94% of PGR's Personal Lines business. In 2022, Personal Lines accounted for 77% of its overall net premiums written. Its Commercial Lines, Property, and Other Indemnity segments accounted for the remaining 23%.

In 2019, Progressive adopted a new dividend policy that would see it pay a quarterly dividend of 10 cents a share, plus a variable dividend at the end of the year based on how its business performed while also factoring into the payout the future growth opportunities.

Before 2019, it solely paid out an annual dividend based on its performance. However, if management and the board feel the company can gain market share, it will hold back the year-end dividend, investing the funds to grow the business.

So, based on its current share price, the annual dividend of 40 cents per share yields  just 0.3%. However, since the change, it has paid out a total of $10.24 in quarterly and year-end dividends. While it did not pay a year-end dividend in 2022, estimates are for the payout to triple over the next two years, which would make PGR one of the best dividend growth stocks. 

"We believe that the stock, despite recent outperformance, should do well as it reflects the potential to compound top line and earnings in the 15% range over the long term," say William Blair analysts, who have an Outperform (Buy) rating on PGR. "This does not appear to be in the current valuation, as the stock is trading at only 14 times our 2024 operating EPS estimate. Near-term catalysts include potential for accelerating premium growth and upward EPS revisions."

* Two-year estimated dividend growth rate estimate courtesy of Seeking Alpha (opens in new tab).