These 6 Stocks Keep Increasing Their Dividends: A. O. Smith (AOS), Honeywell International (HON), Phillips 66 (PSX), RPM International (RPM), Thor Industries (THO) and Starbucks (SBUX)

Inflation. It’s a word that you’re starting to hear a lot more, all of the sudden. Things will continue to get more expensive. It’s inevitable. And this is something you have to prepare for.

All the same, we’re here to invest, build wealth, build passive income, and become financially free. What if you could kill two birds with one stone? Well, that’s what dividend growth investing can do for you.

This strategy is all about investing in world-class enterprises that pay reliable, rising dividends. Because these world-class businesses are producing ever-more profit, they see their stock prices rise over time.

And because they’re producing ever-more profit, they’re able to pay out ever-bigger dividends to their shareholders. That’s passive income you can live off of and become financially free with.

And since these dividends are often rising as fast as, or faster than, inflation, you protect your purchasing power. Today, I want to tell you about six dividend growth stocks that just increased their dividends. Ready? Let’s dig in.

Dividend Increaser Stock #1: A. O. Smith (AOS)

A. O. Smith just increased their dividend by 7.7%.

You just have to love this stuff. All shareholders had to do in order to receive this bump in their passive dividend income was to sit on their hands and not sell stock. How much easier does it get?

This marks the 28th consecutive year of dividend increases for the water heating and water treatment company.

This is a perfect example of why I love investing in dividend growth stocks. Totally passive dividend income that’s incredibly reliable, and it’s increasing, all by itself, like clockwork. Their 10-year DGR is 21.9%, so this dividend increase isn’t as big as shareholders have become accustomed to. Still, I doubt anyone is complaining about a near-8% boost to their income. The Dividend Aristocrat yields 1.6% here, so it’s more of a compounding play than an income play. And the payout ratio, at 41.3%, indicates plenty more growth in the dividend to come.

The stock is up 19% this year, but the valuation looks reasonable.

Most basic valuation metrics are in line with, or lower than, their respective recent historical averages. For example, the yield of 1.6% is 10 basis points higher than its own five-year average. The P/E ratio of 23.6 isn’t super low, but it does compare favorably to the stock’s own five-year average P/E ratio of 26.1. Make sure to take a look at this name if you haven’t already.

Dividend Increaser Stock #2: Honeywell International (HON)

Honeywell just increased their dividend by 5.4%.

Honeywell should be renamed to “moneywell”, because it does well at rewarding their shareholders with more and more money. Despite their exposure to a lot of markets that were heavily impacted by the pandemic, including aerospace, Honeywell has stayed true to their commitment to shareholders.

The multinational conglomerate has now increased its dividend for 11 consecutive years.

The five-year double-digit DGR of 11.1% is really strong, which is what you want to see with a stock that yields just 1.8%. Now, this most recent dividend increase isn’t quite that high. But I suspect that once Honeywell’s end markets get back to full strength, Honeywell’s dividend growth will follow suit. With a payout ratio of 55.7%, the dividend is healthy and easily covered.

This stock has been a laggard this year, up only 3.5%, but I’d like to see an even lower valuation.

Based on this year’s adjusted EPS guidance at the midpoint, the forward P/E ratio is 26.8. That’s a bit high for this name. Even though the stock has kind of treaded water all year, it still looks slightly pricey. What’s happened is, the stock got ahead of itself, and now earnings have to catch up. But they are catching up. A bit of a pullback in the stock’s price, combined with another quarter or two of strong earnings growth, would make this very interesting.

Dividend Increaser Stock #3: Phillips 66 (PSX)

Phillips 66 just increased their dividend by 2.2%.

Not a massive increase. But it is something. The pandemic has whipsawed pretty much every company involved in oil & gas, but what didn’t get whipsawed around is the company’s dividend. And if you’re living off of dividends, that lack of volatility in your passive income is exactly what you want to see.

This is the 10th consecutive year of dividend increases for the multinational energy company.

The five-year DGR is 10.6%. Relative to that, a 2.2% dividend increase looks disappointing. But, like I just said, I think it’s important to consider the environment we’re in. When you factor in the context, it’s impressive that Phillips 66 didn’t cut its dividend over the last year, unlike a lot of other companies in its space. Besides, the stock yields 4.5%, so it’s not like you need a lot of growth to make sense of it. TTM EPS is still negative, so shareholders should be looking for the company to continue improving the bottom line so that this dividend increase is rationalized.

The stock is up 17% YTD, so it’s tough to jump on the wagon now.

A lot of oil & gas plays, including this one, have really run up of late. I think that makes it tough on the valuation front. I don’t see anything super enticing here for new buyers. But existing shareholders should be pleased with how the company has been run and how reliable the dividend has been since it was spun off in 2012.

Dividend Increaser Stock #4: RPM International (RPM)

RPM just increased their dividend by 5.3%.

People glued to the news keep hearing about inflation. But you know what dividend growth investors keep hearing about? Dividend increases. Because all high-quality dividend growth stocks seem to do is reliably increase their dividends like clockwork. Rising dividends are a great way to protect against rising costs.

The multinational manufacturing company has now increased its dividend for 48 consecutive years.

Talk about reliable. They keep delivering the goods. The 10-year DGR is 5.9%, so this dividend increase was right in line with what shareholders should have expected. Meantime, the stock does offer a market-beating yield of 2%. Not bad at all. And with a 45.5% payout ratio, shareholders should be able to count on this dividend and its continued growth for years to come.

This stock is actually down 10% this year, and I think the valuation is fair.

I’d argue it looked expensive heading into 2021. They had a great fiscal year last year. But tough comps have led to poor stock performance this year, even while the business has held up fairly well. The stock looks fairly valued here, based on pretty much every basic valuation metric, but it might make sense to let operations stabilize and see where the dust settles. They’re still lapping tough comps, which is leading to a drop in YOY profit.

Dividend Increaser Stock #5: Thor Industries (THO)

Thor just increased their dividend by 4.9%.

We have a theme here. Mid-single-digit dividend growth. And, you know, I think that’s great. I mean, we’re still recovering from a global pandemic. And yet these companies are handing out very solid dividend increases. Unless you have unrealistic expectations, you should be pretty satisfied.

This is the 12th consecutive year of dividend increases for the recreational vehicle manufacturer.

Their five-year DGR is 7.7%. So we’re only a bit off from that with this particular dividend increase. The stock only yields 1.4%, though, so I’d personally prefer to see higher dividend growth to compensate me for a yield that’s basically in line with the market. That said, the payout ratio is ridiculously low – at only 14.5%. Business is booming, so that has given them plenty of room on the dividend.

The bummer here is that the stock’s 32.5% rise this year has made the valuation rich.

Investors always have a quandary. It’s a quandary where they’re rarely happy. If a stock falls and becomes cheap, they’re upset about poor performance. If a stock shoots up, they complain about a high valuation. This is one of those latter cases. The P/CF ratio, for example, is 13.1. Even with some really strong numbers of late, which has pushed cash flow up, the ratio is high because of strong stock performance. Compare this number to the stock’s own five-year average P/CF ratio of 11.7. The pandemic and related lockdowns have been a boon for business, but it might make sense to let this name cool down some.

Dividend Increaser Stock #6: Starbucks (SBUX)

Starbucks just increased their dividend by 8.9%.

Who needs caffeine when you’re being perked up by a near-9% boost in your passive income? Is it Starbucks or Dividend Bucks? I don’t know. Either way, this company continues to reliably reward its shareholders.

This marks the 12th consecutive year of dividend increases for the global coffeeshop chain.

The 10-year DGR is 25.0%. That’s incredible. But it’s also unrealistic in terms of trying to extrapolate that out forever. I think an 8.9% dividend increase is more than suitable. The stock yields 1.8%, so you’re looking at a pretty compelling combination of yield and growth. The payout ratio looks quite high, at 81.7% right now, but that’s only because earnings are still recovering from last year. This payout ratio will likely compress significantly over the next few quarters.

The stock has done modestly well this year, up almost 8% YTD. The valuation doesn’t look unreasonable.

Is the stock cheap? No. I don’t think so at all. But I also don’t see this valuation as unacceptable in any way. This is a high-quality company with one of the biggest and best brands in the world. You pay up for that. The P/CF ratio is 22.0 right now. Again, not cheap. But not bad at all compared to its own five-year average of 27.4. And the business will likely produce even more cash flow over the coming years as the global economy fully recovers. Look for the stock to fly higher as a result.

— Jason Fieber

P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.