Yield isn't everything when it comes to dividend investing.
Indeed, a steady, rising payout is what leads to long-term capital appreciation. Dividend growth not only makes a stock more attractive to new income investors, but also rewards existing investors with increasingly higher yields on shares purchased at lower prices in the past. Additionally, dividend growth tends to be a sign of health, analysts say.
"Companies with the ability to consistently grow dividend payments tend to be strong franchises," says
After running the numbers on all dividend payers among the 1,200 largest
The company's Divcon dividend-health rating system assesses the likelihood that companies will grow or cut their dividends in the next 12 months. Analyst
Estee Lauder
Market value: $46.9 billion
Dividend yield: 1.1%
5-year annualized dividend growth rate: 16%
Analysts' opinion: 12 strong buy, 3 buy, 3 hold, 0 sell, 0 strong sell
Beauty products and skincare company
Salehizadeh says EL has ample free cash flow to support future dividend growth and it can always reallocate funds from future stock buybacks to support dividend increases.
"The company continues to find innovative ways to stay relevant with millennials," the analyst adds.
Analysts expect
Nike
Market value: $118.3 billion
Dividend yield: 1.0%
5-year annualized dividend growth rate: 14%
Analysts' opinion: 12 strong buy, 2 buy, 9 hold, 1 sell, 0 strong sell
The athletic footwear and apparel maker has "lots" of free cash flow to support future dividend growth, the Salehizadeh says, and can repurpose money currently allocated to buybacks to fund future payout hikes.
"The current marketing campaign with
Shares in
Nvidia
Market value: $143 billion
Dividend yield: 0.2%
5-year annualized dividend growth rate: 15%
Analysts' opinion: 14 strong buy, 4 buy, 7 hold, 0 sell, 0 strong sell
Nvidia (NVDA, $235.13) has become synonymous with share-price appreciation, not payouts, but it's a sneaky-strong dividend grower, Salehizadeh says.
The graphics chipmaker on the cutting edge of PC gaming, artificial intelligence, cloud-based computing and crypto-currency has a five-year annualized dividend growth rate of 15%. Salehizadeh expects more to come.
"As long as gaming, AI and crypto sectors continue to shine, Nvidia will be a top pick," Salehizadeh says, with very strong profit growth and free cash flow supporting dividend hikes.
Analysts forecast NVDA earnings to increase at an average rate of 17.2% annually for the next five years, according to Thomson Reuters data.
UnitedHealth Group
Market value: $247.5 billion
Dividend yield: 1.3%
5-year annualized dividend growth rate: 27%
Analysts' opinion: 14 strong buy, 2 buy, 1 hold, 0 sell, 0 strong sell
The nation's largest publicly traded health insurance company by both annual revenue and market value enjoys "very strong earnings growth," Salehizadeh says, with "an abundance of growth opportunities over the next several years."
Not only is UNH is
As one of the 50 best stocks of all time, it's not hard to see why.
Visa
Market value: $297.6 billion
Dividend yield: 0.6%
5-year annualized dividend growth rate: 27%
Analysts' opinion: 25 strong buy, 2 buy, 1 hold, 0 sell, 0 strong sell
Don't let
The world's largest payments network is well-positioned to benefit from the growth of cashless transactions and digital mobile payments.
"The company continues to innovate in the payment processing space, incorporating new technologies for P2P money transfers, among other areas," Salehizadeh says.
Analysts polled by Thomson Reuters expect
Dan Burrows is a Contributing Writer for Kiplinger.