10 Dividend Growth Stocks Delivering Impressive Increases
Adding dividend growth stocks to your portfolio can provide both income and capital appreciation over the long haul. That makes these 10 picks worth a closer look.
There are two ways to think about dividend growth stocks.
You can view them as companies consistently increasing their annual dividend payment, such as the Dividend Aristocrats, which are individual S&P 500 stocks that have raised their dividend annually for 25 consecutive years or more.
Or you can view them by the rate at which they are currently growing their dividends and revenues. In other words, as both dividend and growth stocks.
In any event, dividend growth stocks have outperformed in various market environments, according to global investment management firm Nuveen.
"Dividend growth stocks have provided an attractive combination of earnings and cash flow growth potential, healthy balance sheets and sustainable dividend policies," the firm's website states. "These stocks have historically offered compelling performance during up markets and provided a buffer during market drawdowns and in volatile environments."
So, for investors eager to pad their portfolio with picks that have the potential to provide both income and capital appreciation over the long haul, here are 10 of the best dividend growth stocks to buy now. Each name on this list is expected to increase its annual dividend per share by 10% or more over the next two years, with revenue expected to rise by at least 10% during the same time frame.
Data is as of Aug. 1. Analyst opinions and other data courtesy of S&P Global Market Intelligence. Stocks are listed in reverse order of two-year estimated dividend growth rate.
Extra Space Storage
- Market value: $26.6 billion
- Dividend yield: 3.2%
- Two-year estimated dividend growth rate: 10.3%
- Analysts' ratings: 7 Strong Buy, 1 Buy, 6 Hold, 0 Sell, 1 Strong Sell
- Analysts' consensus rating: 2.13 (Buy)
Extra Space Storage (EXR, $189.01) is a Utah-based self-storage real estate investment trust (REIT) that owns or manages more than 2,000 self-storage properties and 164 million square feet of storage space across the U.S.
Analysts are less confident about the REIT's ability to grow during the current economic uncertainty. Jefferies analyst Jonathan Peterson recently lowered his price target for EXR stock by $44 to $184. He believes it could underperform during a recession. In addition, given the current supply of units, Morgan Stanley analyst Ronald Kamdem believes Extra Space's rents are too high. As a result, EXR's occupancy fell 80 basis points to 94.5% (a basis point is one one-hundredth of a percentage point).
Still, in EXR's Q1 2022 report, its core funds from operations (FFO), a key REIT earnings metric, were $2.01 a share, 34% higher than a year earlier. And Extra Space's same-store revenue increased 21.7% during the first quarter to $341.9 million from $281 million a year earlier.
The company has big expansion plans too, which will help boost its financial metrics. Extra Space expects to acquire or develop 31 locations in 2022. The cost of these locations is approximately $464 million. In addition, with its joint venture partners, it expects to acquire or develop another 15 for a total outlay of $496 million. It also manages 1,135 locations for third parties and its joint venture partners.
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 3.5%.
Over the past 10 years, it has delivered a cumulative total return of 918.4% for shares. That's in part due to a 92.3% increase in its dividend over the past five years.
- Market value: $21.9 billion
- Dividend yield: 2.2%
- Two-year estimated dividend growth rate: 25.9%
- Analysts' ratings: 16 Strong Buy, 11 Buy, 4 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus rating: 1.61 (Buy)
If you're a Diamondback Energy (FANG, $125.92) shareholder, you're probably (somewhat) disappointed with its performance year-to-date. It has a total return of 20.1%, half of the U.S. oil and gas industry returns. The energy stock has also underperformed over the past year, up 69.2%, significantly less than its peers' 82.2% total return.
Why the lag, you might be asking? The company's latest quarterly report provides the answer.
"We use derivatives, including swaps, basis swaps, roll swaps, costless collars, puts and basis puts, to reduce price volatility associated with certain of our oil and natural gas sales," page 47 of its 10-Q states.
This reduces its exposure when oil prices are low but also limits the upside revenue when prices are high. So, for example, in the first six months of 2022, it had collars in place with weighted average ceiling prices in the $70s. A barrel of West Texas Intermediate (WTI) traded between $77 and $120 in the first three months of 2022 and no lower than $94 between April and June.
While it's leaving money on the table, it's also protecting against a sudden price reversal from something unexpected such as an end to the Ukraine/Russia war.
However, 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. Starting in the third quarter of 2022, Diamondback will return 75% of its free cash flow to shareholders through dividends and share repurchases.
Even though Diamondback's dividend yield is 2.2%, that's just the base dividend. It also is paying out a variable dividend of $2.30 a share. The combined dividend of $3.05 annually yields 10.8% at current prices. In addition, it will continue to repurchase its shares under its $2 billion share repurchase program. To date, it's repurchased $690 million 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.
Old Dominion Freight Line
- Market value: $34.4 billion
- Dividend yield: 0.4%
- Two-year estimated dividend growth rate: 27.1%
- Analysts' ratings: 5 Strong Buy, 1 Buy, 12 Hold, 1 Sell, 1 Strong Sell
- Analysts' consensus rating: 2.60 (Hold)
Old Dominion Freight Line (ODFL, $303.79) is the fourth-largest less-than-truckload (LTL) carrier in the U.S., with 23,663 full-time employees and over 9,200 tractor trailers, operating from more than 240 service centers across the country.
Over the past five years, it has increased its annualized dividend payout by 243%, from 35 cents per share in 2018 to an estimated $1.20 per share in 2022. Its most recent dividend increase was for its March 2022 payment. The quarterly per-share dividend increased 50% from 20 cents to 30 cents.
According to S&P Global Market Intelligence's estimate, Old Dominion will increase its annual dividend by 27% over the next two years. Again, this is a prime example of why dividend growth is far more important than dividend yield.
ODFL's revenues are projected to grow 12% annually over the next two years. Since 2002, its compound annual growth rate for revenue has been 12.4%. The truck carrier's on-time delivery rate is a big reason for this consistent growth. In 2002, it was approximately 94%. Today, it's 99%. At the same time, its cargo claims as a percentage of revenue in 2022 are a low 0.2%, down from 1.5% in 2002.
Since 2012, its total debt has fallen from $240 million to $100 million, while its return on invested capital has doubled to 28% in 2021.
On June 27, Wells Fargo analysts upgraded the industrial stock to Overweight. The analysts felt that after meeting with management, the "less than truckload" (LTL) freight environment and ODFL's opportunities remained very healthy.
"Longer term, we believe that there is substantial growth potential within the LTL industry and that there is a path to it being 3-4x larger; our upside PT is $325, which is based on a higher 24-25x multiple on increased FY23 estimates of $13.25," the analysts stated in their June 27 call.
- Market value: $48.4 billion
- Dividend yield: 1.8%
- Two-year estimated dividend growth rate: 31.5%
- Analysts' ratings: 12 Strong Buy, 4 Buy, 11 Hold, 0 Sell, 1 Strong Sell
- Analysts' consensus rating: 2.07 (Buy)
The Dutch-based semiconductor company has done well for its shareholders over the past decade. A $1,000 investment in NXP Semiconductors (NXPI, $184.50) in 2012 is worth more than $7,700 today, representing a compound annual growth rate of 22.7% – 79% higher than the entire U.S. market.
The 28 analysts covering one of Wall Street's best dividend growth stocks generally have a favorable view of the company's business. BofA Securities' analysts like NXPI and other semiconductor stocks focused on the automotive market and electric vehicles (EVs). The automotive sector is one of NXP's four major focus areas. It generates 50% of its revenue and is expected to grow sales by 11.5% annually over the next three years. The other three are Mobile, Industrial & IoT, and Communication Infrastructure & Other.
In 2021, NXP had $11.1 billion in revenue. By 2024, it's projected to be $15.0 billion, with $6 billion from high-growth businesses such as the automotive sector. For example, in Q1 2022, NXP's automotive revenue was $1.56 billion, 27% higher than a year earlier.
In terms of free cash flow, NXP generated $577 million in the first quarter. Its trailing 12-month free cash flow was $2.31 billion, or 20% of its revenue. Its free cash flow yield is 5.4%. Generally, investors should view anything between 4% and 8% as reasonably priced and not overvalued.
NXP CEO Kurt Sievers was happy with the company's first quarter.
"NXP delivered record quarterly revenue of $3.14 billion, an increase of 22 percent year-on-year and above the mid-point of our guidance range. The strong growth we have anticipated for 2022 is materializing," Sievers stated in its Q1 2022 press release.
Raymond James Financial
- Market value: $21.3 billion
- Dividend yield: 1.4%
- Two-year estimated dividend growth rate: 32.8%
- Analysts' ratings: 4 Strong Buy, 3 Buy, 2 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus rating: 1.78 (Buy)
In the financial services company's Q2 2022 results ended March 31, Raymond James Financial (RJF, $98.66) had net revenues of $2.67 billion, 13% higher than a year earlier. On the bottom line, its adjusted net income was $331 million, 7% less than Q2 for 2021.
While its adjusted net income was down over last year, its key financial metrics in the quarter were all positive. For example, its Private Client Group (PCG) had assets under administration of $1.2 trillion, 17% higher than a year ago. The PCG assets in fee-based accounts were a record $678 million, 19% higher than Q2 for 2021 and flat compared to Q1 of 2022.
If you're interested in buying Raymond James shares, it's important to note that the company has 137 consecutive quarters of profitability. That's more than 34 years without a loss. With this consistency, you can be sure RJF will remain among the best dividend growth stocks.
Over the past 10 years, the company grew its revenues by 11% annually, from $3.33 billion in fiscal 2011 to $9.76 billion in fiscal 2021. At the same time, its compound annual growth rate for EPS and assets under administration were 16% and 17%, respectively. Moreover, those same rates of growth have continued into 2022.
In January, the company completed its acquisition of U.K.-based wealth management advisor Charles Stanley. This acquisition brought $33 billion in client assets under administration and 200 financial advisors. It has two more acquisitions to close by the end of 2022.
Since 2016, Raymond James has returned $2.4 billion to shareholders through dividends and share repurchases. It targets a dividend payout of 20% to 30% of its annual earnings.
RJF currently trades at 10.3 times its forward earnings, considerably less than its five-year average of 13 times its forward earnings.
- Market value: $66.2 billion
- Dividend yield: 0.4%
- Two-year estimated dividend growth rate: 34.9%
- Analysts' ratings: 4 Strong Buy, 1 Buy, 8 Hold, 3 Sell, 3 Strong Sell
- Analysts' consensus rating: 3.00 (Hold)
Progressive's (PGR, $113.26) 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 Progressive's Personal Lines business.
In 2021, Personal Lines accounted for 76% of its overall net premiums written. Its Commercial Lines, Property, and Other Indemnity segments accounted for the remaining 24%.
On July 15, PGR reported its June results. Its net premiums written in the month were $3.88 billion, 7% higher than June 2021. For the first quarter that ended March 31, Progressive's net premiums written increased 12% to $13.2 billion.
Unfortunately, due to rising costs, its underwriting margin in the first quarter was 5.5%, 520 basis points less than a year earlier. However, Progressive's historical average margin is considerably higher compared to its peers in the private passenger auto insurance market. Over the past 10 years, the company's underwriting margin was 7.6%, 770 basis points higher than its peers.
At the end of May, Raymond James analyst Greg Peters reiterated his Outperform rating on PGR. In addition, he has a target price of $135, $5 higher than his previous price.
"We believe Progressive is one of the best-positioned companies in our coverage universe to outperform in 2022, considering the company's competitive position that includes a more flexible pricing platform and technology solutions that monitor and price for distracted driving," Peters wrote in a note to clients.
The analysts' EPS estimate for 2022 and 2023 is $4.65 and $5.75, respectively.
- Market value: $17.0 billion
- Dividend yield: 1.3%
- Two-year estimated dividend growth rate: 42.4%
- Analysts' ratings: 10 Strong Buy, 5 Buy, 8 Hold, 2 Sell, 1 Strong Sell
- Analysts' consensus rating: 2.19 (Buy)
On April 28, Marathon Oil (MRO, $23.99) announced a 15% increase in its quarterly dividend payment. The June 2022 payment was 8 cents a share, up from 7 cents.
"This is the fifth consecutive increase to our quarterly base dividend, representing a cumulative increase of 167% since the beginning of 2021, consistent with our commitment to pay a competitive and sustainable base dividend and to return a significant amount of cash flow to our shareholders," said Chairman, President and CEO Lee Tillman.
While analysts are generally optimistic about Marathon's oil and gas business in 2022, you can see by the number of Hold ratings or below that they're not entirely sold.
Argus Research's most recent update about Marathon suggested that the company's higher-cost crude oil and natural gas, along with headwinds from its operations in Equatorial Guinea, will likely hurt its performance in the near term.
That said, Argus increased its 2022 EPS estimate from $2.21 to $4.49 and its 2023 estimate from $2.36 to $4.69 a share. Based on its 2023 earnings, MRO is trading at less than 5 times its 2023 earnings. That's far less than its historical range of 9 to 16 times earnings.
According to its Q1 2022 presentation, it expects to generate an adjusted free cash flow of $4.5 billion in 2022. That's a free cash flow yield of almost 30%. So, while its oil might be more expensive to get out of the ground, its free cash flow yield is further evidence that MRO is currently undervalued.
- Market value: $15.6 billion
- Dividend yield: 0.2%
- Two-year estimated dividend growth rate: 45.8%
- Analysts' opinion: 10 Strong Buy, 4 Buy, 0 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus rating: 1.29 (Strong Buy)
The 14 analysts who cover Howmet Aerospace (HWM, $37.35) are very high on the producer of engineered metal products. Twelve out of the 14 rate it a Buy with a median target price of $41.00, comfortably higher than where it's currently trading.
For example, on July 6, Truist Securities analyst Michael Ciarmoli and his team initiated coverage on Howmet with a Buy rating and a $41 price target.
"We view HWM as a unique and differentiated asset in the aerospace supply chain that should be in position to benefit from increasing aircraft production rates, share gains in the titanium aerospace market, an easing supply chain in the transportation market, and an operational playbook that should enable continued margin expansion in the coming years," Truist's research report stated.
Over the next two years, Truist expects Howmet's revenues to grow by low double digits, while its EBITDA (earnings before interest, taxes, depreciation and amortization) margins could expand significantly through 2025. For all of 2022, Truist expects revenues and adjusted EPS of at least $5.67 billion and $1.42, respectively.
Truist's upbeat outlook for one of Wall Street's best dividend growth stocks is based on higher production for both narrow-bodied and wide-bodied commercial aircraft and higher-than-expected market share gains for its titanium-based products. In the bull case, it has a $60 target price.
On July 8, Benchmark analyst Josh Sullivan upgraded Howmet to Buy with a $40 target price. The analyst believes it could take significant market share from VSMPO-AVISMA – a Russian producer of titanium-based aircraft parts and components – as aerospace original equipment manufacturers stop using Russian products and switch to Howmet.
S&P Global Market Intelligence's two-year dividends per share growth estimate is 45.8%, while its two-year revenue growth estimate is 12.1%.
- Market value: $18.6 billion
- Dividend yield: 1.2%
- Two-year estimated dividend growth rate: 47.6%
- Analysts' ratings: 4 Strong Buy, 6 Buy, 11 Hold, 2 Sell, 0 Strong Sell
- Analysts' consensus rating: 2.48 (Buy)
Mosaic (MOS, $51.39) is the world's leading producer of concentrated phosphate and potash crop nutrients.
In May, the company generated $1.83 billion in revenue. Broken down by segment, potash and phosphates accounted for 30% and 27%, respectively. The remaining 43% was from Mosaic Fertilizantes, which consists of the assets it acquired in 2018 from its purchase of Vale's (VALE) fertilizer business, along with Mosaic's legacy South American distribution business.
Mosaic's three strategic priorities are to transform and grow its North American business, continue to grow its South American business, and build its global product portfolio.
Inflation continues to be a tailwind for the company. Through May 2, it had year-over-year price increases for corn (10%), beans (5%), wheat (56%), and palm oil (74%). In the first quarter, Mosaic's adjusted EBITDA was $1.45 billion, 159% higher than a year earlier.
In May, CFRA Research analyst Richard Wolfe increased his target price for Mosaic stock by $3 to $76 while retaining his Hold rating. He also increased the company's 2022 earnings per share (EPS) from $10.89 to $12.31 and his 2023 estimate from $7.92 to $9.15. He raised these estimates based on fertilizer prices staying higher for longer.
Mosaic will return 75% of its free cash flow to shareholders in 2022. It plans to use some of it to pay down debt while investing in productivity gains to expand volume output.
"We believe MOS's Q1 results capture the benefits of being a crop input provider amid strong agriculture fundamentals, and investors may view this as a safe haven in the inflationary environment," Wolfe stated in his note to clients.
The average analyst has an Overweight rating and an average target price of $72.05.
MGM Resorts International
- Market value: $14.0 billion
- Dividend yield: 0.03%
- Two-year estimated dividend growth rate: 145.2%
- Analysts' ratings: 9 Strong Buy, 3 Buy, 6 Hold, 0 Sell, 0 Strong Sell
- Analysts' consensus rating: 1.83 (Buy)
MGM Resorts International (MGM, $32.84) has 32 hotel and gaming destinations worldwide. In addition, it owns 50% of BetMGM, the company's U.S. sports betting joint venture with Entain (GMVHY). BetMGM currently has approximately 28% of the U.S. iGaming market, 700 basis points higher than its nearest competitor.
Recent reports suggest that MGM is interested in acquiring privately held Genting Singapore. The company has held talks with the controlling Lim family about either acquiring it outright or making a substantial investment in the business. Genting Singapore has an estimated value of $7 billion. However, JPMorgan analysts believe Genting Singapore would likely only agree to a minority investment by MGM.
Jefferies analysts held meetings with MGM management in mid-June. They came away impressed by its Las Vegas business.
"Current trends and forward bookings on the Strip very strong, with weekend rates up 20%+ vs. pre-pandemic; should be able to maintain 4-600bps of margin improvement vs. 2019," Jefferies stated in its June 16 research note.
Jefferies currently has a Buy rating on its stock.
As for a possible recession hurting the casino business, MGM CEO Bill Hornbuckle recently said that he expects inflation and high gas prices to affect MGM's business. Still, it hasn't seen any signs as of mid-July.
On the bright side, Hornbuckle said that the casino operator has never seen so many millennials in its casino before, suggesting that it has an excellent growth runway.
One more thing: You might notice that MGM has a dividend yield of just 0.03%. That's accurate. However, S&P Global Market Intelligence's annual growth estimate for dividends per share over the next two years is 145%. That easily makes MGM one of the best dividend growth stocks out there.