For dividend investors, finding stocks that consistently raise their payouts year after year is the key to building a sustainable income stream. Dividend growth stocks allow investors to benefit from both increasing dividend income and capital appreciation over time.
In this article, we will explore three dividend growth stocks that have demonstrated a strong commitment to delivering higher dividends to shareholders year after year. These “ever-rising” dividend stocks represent solid long-term picks for income-oriented investors.
Johnson & Johnson – The Dividend King
With 60 consecutive years of dividend increases under its belt, Johnson & Johnson (NYSE: JNJ) has earned its place as one of the most reliable dividend growth stocks on the market. The healthcare giant has paid dividends since 1944 and has grown its payout by 6.1% annually over the past decade.
J&J operates in three segments: pharmaceuticals, medical devices, and consumer health. Its diversified business model provides stability across economic cycles, while its massive scale and entrenched competitive advantages give J&J unmatched pricing power.
Some key facts about J&J’s dividend track record:
- Dividend King with 60 straight years of dividend growth
- Currently yields 2.5% with a sustainable payout ratio of 44%
- 10-year annualized dividend growth rate of 6.1%
- Payout ratio has room to expand from current level
With its strong cash flow generation, potent brands like Tylenol and Band-Aid, and innovative new drugs, J&J is well-positioned to continue its dividend growth streak for years to come. Income investors can count on this Dividend King to keep cash flowing into their account.
Microsoft – Tech Giant Turned Income Stock
Microsoft (NASDAQ: MSFT) has transitioned from a growth stock into a steady dividend payer, with 18 years of consecutive dividend growth under its belt. The tech giant has a solid record of doubling its dividend every four years or so, providing income investors with a steadily rising stream of cash flow.
As a leader in the oligopolistic software industry, Microsoft enjoys durable competitive advantages with its Windows, Office, and cloud computing products. With a forward dividend yield of 1.1% and a safe payout ratio of 27%, Microsoft has plenty of room to continue hiking its dividend in the years ahead.
Highlights of Microsoft’s dividend profile:
- 18 straight years of dividend increases
- 10-year dividend growth rate of 10%
- Low payout ratio of 27%
- Current yield of 1.1% with double-digit annual growth
- Clear path for continued dividend hikes as cash flow grows
Microsoft’s low-risk business model generates gobs of excess cash even in tough economic conditions. Income investors can expect at least another decade of double-digit dividend growth from this technology leader.
American Water Works – Recession-Resilient Monopoly
With 48 consecutive years of dividend growth under its belt, water utility American Water Works (NYSE: AWK) has one of the longest dividend growth streaks in the entire stock market.
As the largest publicly traded water and wastewater utility in the U.S., American Water Works enjoys a monopoly-like status in the regions it serves. Water utilities generate very stable and predictable earnings, as customers must continue paying their water bills even during recessions.
Here are some attractive traits about American Water’s dividend:
- 48 straight years of dividend increases
- 10-year dividend growth rate of 9.8%
- Current dividend yield of 1.6%
- Low payout ratio of 55%
- Earnings highly resistant to economic downturns
Looking ahead, American Water Works plans to invest up to $13 billion through 2024 to upgrade its infrastructure and improve water quality. These investments will drive rate base growth and support continued dividend increases of 7% to 10% annually. Income investors will love getting bigger dividend checks from this recession-proof utility.
Key Takeaways on Ever-Rising Dividend Stocks
The three stocks profiled above – Johnson & Johnson, Microsoft, and American Water Works – represent prime examples of ever-rising dividend stocks. Here are some key takeaways:
- Focus on companies with long histories of consecutive dividend growth. This demonstrates a strong commitment to rewarding shareholders.
- Dividend growth stocks tend to outperform stocks with static or declining dividends over the long run. Rising dividends signal a company with growing earnings power.
- Favor stocks with moderate payout ratios below 60%, which provide a cushion for increasing dividends. High-yield, high-payout stocks tend to underperform.
- Seek companies with durable competitive advantages that enable them to generate consistent earnings and cash flow to support growing dividends.
- Diversify across multiple dividend growth stocks and sectors to build an all-weather income stream for your portfolio.
The Bottom Line
Dividend growth investing represents a proven strategy for investors to compound wealth over time. By reinvesting rising dividends back into more shares, investors can turbocharge their income streams and total returns.
Johnson & Johnson, Microsoft, and American Water Works make up a diversified trio of stocks that have demonstrated their commitment to paying shareholders a growing income stream. With their strong underlying businesses and rising profitability, investors can expect many more years of steady dividend increases from these three winners.