Investing in dividend growth stocks is a smart strategy to generate income and achieve long-term capital appreciation. These stocks offer the dual advantage of increasing dividend payments and exhibiting strong growth potential. Whether you focus on companies with a consistent history of raising dividends or those currently experiencing rapid dividend and financial growth, dividend growth stocks have proven to outperform in various market conditions.
Nuveen, a global investment management firm, highlights the attractive qualities of dividend growth stocks, including their potential for earnings and cash flow growth, robust balance sheets, and sustainable dividend policies. These stocks have historically delivered impressive performance during bullish markets while offering stability during market downturns and volatile periods.
To compile a list of the best dividend growth stocks, we examined the S&P Composite 1500 Index, which includes all equities from the S&P 500, S&P 400, and S&P 600. This comprehensive index covers approximately 90% of the market capitalization of U.S.-listed stocks. Our selection process focused on companies projected to achieve at least 8% dividend growth over the next two years, backed by solid and expanding fundamentals.
For investors seeking to enhance their investment strategy with dividend growth stocks that offer both income and long-term appreciation potential, here are six top picks to consider. These stocks possess the qualities necessary to deliver attractive returns and sustainable dividend growth.
1. Extra Space Storage (EXR)
Market value: $21.4 billion
Dividend yield: 4.3%
Two-year estimated dividend growth rate: 8.1%
Extra Space Storage is a real estate investment trust (REIT) that owns or manages self-storage properties across the U.S. With a market value of $21.4 billion, the company offers a dividend yield of 4.3%. It is expected to grow its dividend by 8.1% over the next two years. Extra Space Storage recently announced a merger with Life Storage, which will expand its asset base and make it the eighth largest REIT. The company has a strong track record of prudent capital allocation and value creation, making it an attractive investment.
Extra Space Storage benefits from the increasing demand for self-storage, driven by urbanization, downsizing, and e-commerce. The company’s focus on high-quality properties in densely populated areas provides a competitive advantage. With a consistent history of dividend increases and a healthy payout ratio, Extra Space Storage offers stability and growth potential for income-seeking investors.
2. Kimco Realty (KIM)
Market value: $11.7 billion
Dividend yield: 4.9%
Two-year estimated dividend growth rate: 13.7%
Kimco Realty is the largest publicly traded owner and operator of open-air, grocery-anchored shopping centers in North America. With a market value of $11.7 billion, the company has a dividend yield of 4.9% and an estimated dividend growth rate of 13.7% over the next two years. Kimco recently underwent a reorganization to enhance its growth prospects and received a significant cash infusion from Kroger’s buyout of Albertsons. These developments position Kimco for future growth and make it a compelling dividend growth stock.
Kimco Realty’s portfolio of high-quality properties, diversified tenant base, and strategic locations provide a stable income stream. The company has been actively reducing its debt, improving its balance sheet, and optimizing its portfolio through property sales and acquisitions. With a focus on high-growth markets and an emphasis on experiential retail, Kimco is well-positioned to adapt to changing consumer preferences. Its commitment to increasing dividends and attractive yield make it an appealing choice for long-term investors seeking both income and capital appreciation.
3. Marathon Oil (MRO)
Market value: $14.8 billion
Dividend yield: 1.7%
Two-year estimated dividend growth rate: 17.9%
Marathon Oil is an energy company that is expanding through mergers and acquisitions. With a market value of $14.8 billion, the company offers a dividend yield of 1.7% and a projected dividend growth rate of 17.9% over the next two years. Marathon Oil’s recent acquisition of Ensign Natural Resources’ Eagle Ford assets provides immediate earnings gains and future development opportunities. The company’s strong cash flow and commitment to dividend increases make it an attractive choice for dividend growth investors.
Marathon Oil has a diversified portfolio of high-quality assets, including unconventional shale resources. The company’s disciplined capital allocation strategy focuses on generating free cash flow and maintaining a strong balance sheet. Marathon Oil has been actively reducing its debt and implementing cost-saving measures, positioning itself for sustainable growth. With a favorable outlook for oil prices and increasing production, Marathon Oil has the potential to deliver strong dividend growth and capital appreciation for long-term investors.
4. Charles Schwab (SCHW)
Market value: $92.8 billion
Dividend yield: 2.0%
Two-year estimated dividend growth rate: 18.4%
Charles Schwab is a financial firm known for its brokerage and wealth management services. With a market value of $92.8 billion, the company has a dividend yield of 2.0% and an estimated dividend growth rate of 18.4% over the next two years. Charles Schwab’s strong market position, robust client base, and focus on technological innovation give it a competitive edge in the industry. The company’s acquisition of TD Ameritrade further strengthens its market presence and diversifies its revenue streams.
Charles Schwab benefits from the increasing demand for digital financial services and the growing popularity of self-directed investing. The company’s commitment to low-cost investing and excellent customer service has earned it a loyal client base. With a strong balance sheet, consistent earnings growth, and a shareholder-friendly approach, Charles Schwab is well-positioned for future dividend increases. For investors seeking exposure to the financial sector and long-term income growth, Charles Schwab is an excellent choice.
5. Howmet Aerospace (HWM)
Market value: $17.7 billion
Dividend yield: 0.4%
Two-year estimated dividend growth rate: 18.8%
Howmet Aerospace (HWM) is a producer of engineered metal products, and analysts are highly optimistic about the company’s future. Of the 16 analysts tracked by S&P Global Market Intelligence, nine rate it as a Strong Buy, four as a Buy, and three as a Hold. One key factor driving this optimism is the current decrease in international air traffic compared to pre-pandemic levels. As air travel gradually resumes, companies like Howmet are expected to experience increased orders as consumers regain confidence in traveling.
Jefferies analyst Sheila Kahyaoglu recently initiated coverage on HWM with a Buy rating and a $50 price target, indicating a potential upside of 16.3% from the current levels. Kahyaoglu highlighted Howmet’s position as a tech leader with a significant market share, strong net price realization capabilities supporting solid adjusted EBITDA margins, and robust free cash flow conversion potential in the coming years.
Howmet’s outlook for 2023 is encouraging, with the company projecting at least $580 million in free cash flow from $6.0 billion in revenue. This represents growth compared to the $520 million in free cash flow and $5.7 billion in revenue reported in fiscal 2022.
In terms of dividend growth, analysts estimate that Howmet will increase its dividend by 18.8% over the next two years. Furthermore, revenue is expected to grow 8.4% in fiscal 2023 and 7.9% in fiscal 2024. These factors contribute to Howmet’s position as one of the best dividend growth stocks
6. Ingersoll Rand (IR)
Market value: $22.1 billion
Dividend yield: 0.1%
Two-year estimated dividend growth rate: 37.5%
Ingersoll Rand (IR) is an industrial stock with a market value of $22.1 billion. The company operates through two segments: Industrial Technologies and Services (ITS) and Precision and Science Technologies (PST). Analysts appreciate Ingersoll Rand’s ability to acquire smaller companies and successfully integrate them into its operations, leading to compounding earnings over the long term. In 2022, the company made 12 acquisitions, including the purchase of SPX Flow’s Air Treatment business for $525 million.
Ingersoll Rand’s acquisition of SPX Flow’s Air Treatment Business adds a leading manufacturer of energy-efficient desiccant and refrigerated dryers, filtration systems, and purifiers to its portfolio. This acquisition complements Ingersoll Rand’s position in the compressed air market and expands its product offerings to a broader market. The company aims to continue its growth trajectory through both organic investments and an M&A-focused capital allocation strategy.
Although Ingersoll Rand currently has a modest dividend yield of 0.1%, analysts expect the company to increase its dividend by 37.5% over the next two years, positioning it as one of the best dividend growth stocks.
