Investing in dividend growth stocks is one of the most reliable strategies for preserving and growing capital in the stock market. These companies, which have a proven track record of consistently increasing shareholder payouts, demonstrate financial strength, capable management and a competitive advantage in their respective industries. These stocks offer investors a powerful combination of stable income and the potential for capital appreciation.
However, not all dividend growth issuers are created equal. A select few companies stand out from the pack, boasting exceptional dividend growth rates and promising long-term financial prospects. These elite companies represent particularly attractive opportunities for investors looking to maximize their returns through dividend growth investing.
Here are two of the best dividend growth stocks It’s worth thinking about now.
A logistics leader with a blazing dividend growth rate
FedEx (NYSE:FDX) is one of the leading players in the global logistics industry. The company has increased its cash dividend to shareholders at an impressive rate of 15.5% per year, on average, over the past five years. As a reminder, the largest dividend growth stocks enjoy a much more modest annual increase of 6% on average.
Additionally, the logistics titan has a rather modest distribution rate of around 29%. While FexEx’s 2.15% yield isn’t stellar, the company shouldn’t have any trouble maintaining its blazing dividend growth rate in the years to come.
FedEx stock is also very cheap at current levels. With shares trading at less than 12 times forward earnings, the overnight delivery pioneer is attractively priced, relative to the benchmark S&P500which trades at more than 22 times forward earnings.
FedEx is not a growth machine, as evidenced by its single-digit revenue forecast for the next two fiscal years. But its well-established competitive position in a growing industry, its commitment to rewarding its loyal shareholders and its rock-bottom valuation predict a bright future for its shares.
The heavyweight of diversified health
Johnson & Johnson (NYSE: JNJ) stands out as a top dividend growth stock in the healthcare sector. With its highly diversified portfolio spanning pharmaceuticals and medical devices, J&J appears poised for modest but steady revenue growth in the years ahead.
While this outlook may not seem exciting at first glance, J&J’s real strength lies in its proven ability to generate compound returns over time. On this subject, the company has 62 years of experience of consecutive dividend increases. And with an average annual dividend growth rate of 5.62% over the past five years and a conservative payout ratio of about 70%, J&J’s dividend program is an exceptionally safe bet for income-seeking investors.
J&J’s margin of safety is further highlighted by its strong balance sheet. Specifically, the health care company sports a AAA credit rating, according to S&P Global. The company’s strong balance sheet and prudent capital management strategy should enable it to weather upcoming patent expirations and increasing competition for certain key products.
Overall, J&J stock is worth considering for its reliable dividend growth, diversified business structure, and top-notch balance sheet.
Should you invest $1,000 in FedEx right now?
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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx and S&P Global. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy.
2 Incredible Dividend Growth Stocks to Buy Right Now was originally published by The Motley Fool
