5 Stocks Growing Their Dividend More Than 10% Per Year

When it comes to dividend stocks, not all stocks are created equal. There are different types of dividend stocks:

Low yield dividend stocks

Moderate yield dividend stocks

High-yield dividend stocks

All of these types above are solely based on the dividend yield. However, there is a fourth category, which can mix with any of these other three types of dividend stocks, and what I am referring to is a Dividend Growth Stock.

These types of stocks are growing their dividend at a fast pace each and every year at a rate of 10% or more per year on average.

If you are a long term investor who believes in the Power of Compounding, dividend growth stocks further supercharge this process.

Today, I am going to cover five high-quality dividend growth stocks that have all increased their dividend at an average annual rate of 10% or more over the past five years.

5 High-Quality Dividend Growth Stocks

Dividend Growth Stock #1 – UnitedHealth Group (UNH)

UnitedHealth is a diversified health care company within the United States and one of the largest insurance providers.

UNH has the largest weighting within the Dow Jones Industrial Average index, as the average is a price weighted index, meaning the highest share price has the highest weighting.

UNH shares currently have a market cap of $432 billion.

Over the past 12 months, shares are down roughly 5%, so they have held up rather well considering the S&P 500 was under intense pressure in 2022. Much of the downside pressure for UNH has come in 2023, as shares are down 10% to start 2023.

The company operates within four segments:

UnitedHealth Care

Optum Health

Optum Rx

Optum Insight

UnitedHealth Care is the insurance provider component of the business. Optum Health is a national health care delivery platform, which has really excelled in this new digital age. Optum Rx is the pharmacy component of the business where patients can have prescriptions filled online. Optum Insight operates in health-tech, providing analytics and management technologies.

Optum insight is far in away the company’s highest when it comes to gross margin, however, it is also the lowest in terms of Earnings Before Income Taxes, so the weighting on the company as a whole is lower, unfortunately.

Growing free cash flow is a great sign for any company, dividend stock or not, but especially a dividend paying stock. UnitedHealth has grown their free cash flow every year but three since 2009.

Here is the free cash flow growth from 2009 to 2022:

2009 FCF: $4.9 Billion

2022 FCF: $23.4 Billion

This strong FCF has allowed the company to pay a growing dividend for each of the past 13 years. Here is a closer look at the dividend:

Dividend: $6.60 Yield: 1.42% Payout Ratio: 29% 5yr Dividend Growth Rate: 17%

The dividend growth has been superb, but that is not reason enough to buy a stock, valuation has to make sense, so let’s take a closer look at valuation.

Analysts are looking for 2023 EPS of $24.91 per share, which equates to a forward P/E multiple of 18.6x. Over the past five years, shares have traded at an average multiple of 21.4x and over the past decade closer to 20.2x.

Shares do look rather intriguing at current levels, especially if we fall into a recession, as I expect, I think health insurers like UNH could hold up well.

Dividend Growth Stock #2 – Visa Inc. (F)

Visa is one of the largest credit card and payment technology companies in the world. You can have a Visa card and travel around the globe and have little issues finding places of business that do not accept Visa credit cards.

Visa currently has a market cap of $441 billion. Over the past 12 months, shares of V have increased nearly 10%.

There were some concerns for shareholders in 2022 when Visa got into a tussle with Amazon (AMZN) over processing fees, which resulted in Visa cards not being allowed on the platform for some time. However, that eventually got resolved and shares have not looked back.

When you think of credit card providers, you think of Visa, Mastercard (MA), and American Express (AXP). All three of these companies are performing well in a world that is becoming less dependent on actual cash and more dependent on credit.

In addition to having a great business model, Visa also sports a solid AA balance sheet.

Since 2009, Visa has seen their free cash flow explode:

2009 FCF: $252 Million 2022 FCF: $17.9 Billion

The 2022 free cash flow was a 23% increase year over year.

In terms of the dividend, investors do not invest in Visa for the income, instead, they invest in Visa for the growth potential and the dividend growth.

Here is a look at the dividend stats:

Dividend: $1.80 Yield: 0.8% Payout Ratio: 21% 5yr DGR: 18% Consecutive Yrs of Div Growth: 14yrs

So again, another company with very strong dividend growth. Now let’s see where the stock is trading in terms of valuation compared to their historical average.

Analysts are looking for 2023 EPS of $8.47 per share, which would be a 13% increase year over year. That estimate equates to a forward P/E multiple of 25.8x compared to their 5-year average of 33.9x. Over the past decade, shares of V have traded at an average multiple of 29.6x.

Dividend Growth Stock #3 – Starbucks Corporation (SBUX)

Starbucks has become a fan favorite among the dividend growth community, as they have proven over the years, even during a pandemic, to find ways to return more money to shareholders. This is being done both through a growing dividend and stock buybacks.

The company recently hired a new CEO and for the past few months they have been under the direction of former CEO Howard Schultz.

Starbucks currently operates with a market cap of $114 billion and over the past 12 months, the stock has moved higher by about 25%, far outpacing the larger market.

As of this writing, today was the first day in 2023 that shares of SBUX closed BELOW $100.

Similar to what we have seen with the first two stocks, Starbucks also does a fantastic job generating free cash flows. The company was hit hard during the pandemic, but they are getting their mojo back some and the reopening of China will certainly help.

Here is a look at the company’s dividend stats:

Dividend: $2.12 Yield: 2.1% Payout Ratio: 68% 5yr DGR: 13% Consecutive Yrs of Div Growth: 12yrs

Looking at valuation, as we have seen, shares are up a sizable amount over the past 12 months, so let’s see if that correlates with the stock being expensive.

Analysts are looking for 2023 EPS of $3.39, which equates to a forward earnings multiple of 29.3x. Over the past five and 10 years, SBUX shares have traded at an average multiple of 31.3x and 30.9x, respectively.

Shares are trading pretty close to fair value and I would rate shares a HOLD at current levels, but would maintain this stock high on my watchlist.

Dividend Growth Stock #4 – Broadcom (AVGO)

Broadcom hails from the semiconductor space which has been a volatile sector of late. As we have seen, not all semiconductor stocks are created equal.

Over the past 12mo, you have semiconductor stocks like Intel (INTC) that are down nearly 40%, and stocks like Micron (MU) which are down more than 20%. On the flip side, you have semiconductor companies like Nvidia (NVDA) and Broadcom that are both up more than 10% over the past 12 months.

Broadcom currently trades with a market cap of $257 Billion and shares of AVGO are up 11% over the past year.

The company is very well diversified with products in:

Broadband WiFi Data Centers Automotive Financial Services Cybersecurity And More

Of all the companies we have looked at today, Broadcom stands at the top in terms of FCF and the growth consistency. Broadcom has grown their free cash flow from $82 million in 2009 to $16.3 billion in 2022, which was a 22% increase from the previous year. During that period, they saw only ONE year of negative FCF growth.

The strong free cash flow has led to AVGO becoming one of the fastest growing dividend growth stocks. Here is a look at the company’s dividend stats:

Dividend: $18.40 Yield: 3% Payout Ratio: 44% 5yr DGR: 29% Consecutive Yrs of Div Growth: 11yrs

Looking at valuation, we saw shares up more than 10%, which has largely been fueled by the 14% increase to start 2023, but how has that adjusted their valuation?

Analysts are looking for AVGO to generate EPS pf $10.52 in 2023, which would only be a 4% increase from the previous year. If they achieve that, shares currently trade at a forward earnings multiple of 14.6x compared to their five-year average of 14.0x, thus shares are looking a little pricey here.

I LOVE Broadcom and it’s probably my favorite dividend growth stock on today’s list, but I want to see if the stock comes down before I add more to my position. I last added to the stock back in February and would like to add more if given the opportunity.

Dividend Growth Stock #5 – TJX Companies (TJX)

This final dividend growth stock, TJX Companies, fits perfectly into the environment we are in and the one we are entering. Right now the talk of the town, at least among investors, has been more about when not if we fall into a recession.

Now, we know everyone is not an investor, but consumers are starting to feel the pinch regardless. The data has continued to show a weakening consumer that has less in savings and more on credit cards, a growing trend going in the wrong direction.

As finances tighten, consumers will start to look more for value which plays nicely into the hands of TJX.

TJX is a company in a perfect spot right now as demand creeps up but they are also seeing many retailers having to unload their merchandise for low cost to fix their inventory issues.

TJX is not about keeping up with current trends necessarily, so they are getting cheap inventory right now and selling it for higher margins. I expect good things from TJX the next few years.

TJX Companies currently trades at a market cap of $85 billion, the smallest on today’s list. Over the past year, shares of TJX are up 22%.

The company also generates positive free cash flow, but that FCF is more cyclical due to the nature of the business. In 202, the company had their strongest year in terms of FCF as they generated nearly $4 Billion in FCF.

As we have seen, strong FCF helps support a growing dividend. Here is a look at the company’s dividend stats:

Dividend: $1.18 Yield: 1.6% Payout Ratio: 37% 5yr DGR: 14% Consecutive Yrs of Div Growth: 1yrs

Since going public in 1987, TJX had increased its dividend EVERY year, so they were a Dividend Aristocrat, but that all changed in 2020 when the company was forced to close stores and thus suspend their dividend. However, the dividend has been reinstated and is back moving higher, so just a small blip to preserve cash rather than focus more on a dividend aristocrat title.

Next let’s take a look at valuation.

Analysts are looking for EPS of $3.51 moving forward which equates to an earnings multiple of 21.3x. Over the past five years, shares of TJX have traded at an average multiple of 24.6x and over the last decade closer to 22.0x.

Shares are trading well below their 5-yr avg and below the 10yr avg. Given their extensive history of dividend growth, all except for the pause in 2020, TJX is set to have a strong couple of years given the environment, which makes this stock very intriguing.

Investor Takeaway

As we saw, each of these companies has proven to generate strong free cash flow over the years, which has helped fund a growing dividend. All but one have very long consecutive periods of dividend growth.

Stable balance sheets, strong management teams, and growing free cash flows are all great things to look for when analyzing a company and all five of these companies have that.

In terms of valuation, not all of them are cheap, but all of them should be high on your watchlist so you are ready when the opportunity presents itself.

Disclosure: This article is intended to provide information to interested parties. I have no knowledge of your individual goals as an investor, and I ask that you complete your own due diligence before purchasing any stocks mentioned or recommended.