These 6 Dividend Growth Stocks Are The Gifts That Keep Giving

High-quality dividend growth stocks are like the gifts that keep on giving. Except it’s way better than it sounds. They’re not just gifts that keep on giving.

These are gifts that keep on giving more… and more… and more. That’s right. I’m talking about dividend growth stocks here. The growth refers to the growth of the dividends.

A stock that just pays a dividend would be a gift that keeps on giving. But a stock that pays a dividend that grows year in and year out, like clockwork, is more than that.

It’s an exceptional treasure that can make exponentially increase your wealth and passive income over time. Because not only is it a growing dividend – it’s a compounding dividend.

Each dividend increase is heaped on top of prior dividend increases stretching all the way back to the start.

Today, I want to tell you about six dividend growth stocks that just increased their dividends. Ready? Let’s dig in.

The first dividend increase I want to highlight is the one that came in from Best Buy (BBY).

Best Buy just increased their dividend by a whopping 25.7%.

Talk about a gift that keeps on giving more and more. How would you like to wake up to news that your income just got boosted by nearly 26%? That’s what Best Buy shareholders recently experienced. You’ve gotta love that.

This is the 19th consecutive year in which the consumer electronics and appliances retailer has increased its dividend.

And with this most recent dividend increase, they’re showing no signs of slowing. Actually, it’s the opposite. There’s been a dividend growth acceleration. You can see that when you compare this number up against the 10-year dividend growth rate of 15.8%. And with a payout ratio of just 53.3%, even after this big dividend increase, the stock’s dividend is protected. That makes the stock’s secure yield of 3.7% that much more appealing.

This could be one of the more undervalued names in the whole market.

Best Buy’s stock could be one of the best buys out there. Is Best Buy something you bet the farm on? I don’t think so. But it does offer a near-4% yield on a rock-bottom valuation with its sub-10 P/E ratio. We recently put out a full analysis and valuation video on Best Buy, showing why shares in the business could be worth approximately $122/each. And that video came out before this huge dividend increase. The stock looks even better now. Take a look at Best Buy, if you haven’t already.

Next up, let’s talk about the dividend increase that was announced by Digital Realty Trust (DLR).

Digital Realty just increased their dividend by 5.2%.

Not a massive dividend increase like Best Buy, but it is more money. And it’s more money for doing absolutely nothing… other than not selling shares you already owned. It’s tough to complain about any of that.

This is the 18th consecutive year of dividend increases for the data center real estate investment trust.

Digital Realty is in a very exciting area of real estate. This isn’t your corner grocery store here. This is a global player in the data center space, serving many of the major companies that keep the world turning. The 10-year dividend growth rate is 5.4%, which is solid. And you get a nice 3.3% yield here. With the dividend only sucking up 71.2% of midpoint guidance for this fiscal year’s core FFO/share, the company should have no problems with affording the payout.

This stock is 18% off of its 52-week high, and this could be an opportunistic time to get in.

Based on that aforementioned guidance, we’re talking about a forward P/FFO ratio of 21.4. Not exceptionally cheap. But not all that expensive, either. Keep in mind, the five-year average cash flow multiple on the stock is 20.6. At the 52-week high of $178.22, the stock looked pricey. But now down here at around the $146 area, it’s become rather reasonable. This is a stock that can look expensive for long stretches, so those times when it becomes reasonably valued could be opportunities for long-term dividend growth investors to get in.

The third dividend increase I have to tell you about is the one that came from General Dynamics (GD).

General Dynamics just increased their dividend by 5.9%.

In any environment other than the one we’re in right at this exact moment, where inflation is running historically hot, a 5.9% dividend increase is more than enough to keep one’s purchasing power moving higher. Still, even in this environment, a near-6% increase in your income gets you pretty close. And it’s a heck of a lot better than sitting on cash and losing a ton of purchasing power every day.

The major defense contractor has now increased its dividend for 31 consecutive years.

Their 10-year dividend growth rate is 9.8%, so this most recent dividend increase looks a little soft by comparison. After investing for more than 10 years now, I’ve seen this movie before. Dividend growth can ebb and flow a bit from most companies. But things tend to average out very nicely over the long run when you’re sticking to great businesses. The stock yields a market-beating 2.1%, and the low payout ratio of 43.6% means that the dividend is positioned for continued growth for years to come.

This has been a strong name this year, up 15% YTD. And it might make sense to let it come in a bit before buying.

I’m a huge fan of defense companies as investments for long-term dividend growth investors. The industry’s economics are fantastic. And I was screaming from the mountaintops about many of these businesses throughout 2021. In 2022, with defense companies shooting through the roof after war broke out in Ukraine, I’m a bit less enthusiastic. Still, General Dynamics is a long-term winner. And if it shows some weakness after a run, that would be the time to consider striking.

The fourth dividend increase we have to talk about is the one that was announced by Innovative Industrial Properties (IIPR).

Innovative Industrial Properties just increased their dividend by 16.7%.

Even with inflation running unusually hot, this dividend increase is hotter. This is the kind of holding that can keep a portfolio’s overall dividend growth running at a high level. I say that because this company has consistently shown a willingness to increase its dividend at impressive rates.

This is the 6th consecutive year of dividend increases for the real estate investment trust in the medical-use cannabis industry.

And what a start they’re off to. Check this out. The three-year dividend growth rate is a stunning 29.1%. But wait. There’s more. The stock yields 3.4%. Where else do you get that kind of yield and that kind of dividend growth? Almost nowhere.

One issue I have here with the dividend, though, is the fact the current quarterly dividend of $1.75/share exceeds the $6.66 in adjusted funds from operations per share that the company produced for FY 2021. However, this company has been growing so fast, they should be able to grow their way out of this. And I think management sees the same thing, or they wouldn’t have increased the dividend by nearly 17%.

This stock is down 17% this year, and this pullback has created a more reasonable valuation.

It is difficult to really get a handle on the valuation in terms of what you should pay. That’s because it’s a new company, founded in 2016. And it’s been growing at a blistering rate since going public. Is it the cheapest stock in the market?

No. However, I see nothing unreasonable about the P/CF ratio of 28.6 that the stock is sporting right now. If this were, say, a mature REIT in the triple net lease retail space, that would be way too high. For a fast-growing player in the fractured cannabis space? It doesn’t seem crazy to me. It’s definitely not a conservative investment, but I do think it’s worth a close look.

The fifth dividend increase we have to have a discussion about is the one that came from Qualcomm (QCOM).

Qualcomm just increased their dividend by 10.3%.

This is one of my favorite chip companies. It’s one of my favorite companies in all of tech. They’re in so many exciting areas of tech – handsets, 5G, IoT, auto, etc. And that sets them up for years of continued business growth and dividend growth.

The technology company has now increased its dividend for 20 consecutive years.

Their 10-year dividend growth rate is 12.5%, which is really solid. Admittedly, dividend growth has been a bit lumpy, coming in spurts between lulls. Like I mentioned earlier, things tend to average out nicely over the long run when you’re investing in high-quality businesses.

And this 10.3% dividend increase makes good on some disappointing dividend increases from years past. The stock’s somewhat low yield of 1.8% does make double-digit dividend growth almost necessary, so it’s great to see Qualcomm making good on that. With a payout ratio of only 34.4%, the company has plenty of room for more double-digit dividend increases going forward.

This is another stock that’s down 17% YTD, and we could have a case of severe undervaluation on our hands.

Almost every basic valuation metric for the stock is now indicating undervaluation. Take the 17.6 P/E ratio, for instance. The stock’s five-year average P/E ratio? 27.4. Now, GAAP results have been a bit lumpy, skewing this comparison, but there appears to be a large discount on the multiple – no matter how you slice it.

The company is setting itself up to do more than $10/year in EPS. Slapping a reasonable P/E ratio of 20 on that gets you to a $200 stock pretty easily. With the stock currently at $154, there could be a ton of upside here. Make sure that Qualcomm is on your radar.

Last but not least, I want to share with you the dividend increase that was announced by Williams-Sonoma (WSM).

Williams-Sonoma just increased their dividend by 9.9%.

Man. Almost a double-digit dividend raise. They were so close. Still, a near-10% increase in your income is always most welcome. Especially when it’s an increase in your passive income. This is income you don’t have to work for. Getting a boost in that same income? Beautiful.

The luxury home furnishings company has now increased its dividend for 17 consecutive years.

This dividend increase wasn’t far off from what you’d expect. After all, the 10-year dividend growth rate is 13.9%. So we’re not that far off from that. And with the stock’s yield at 2.1%, I think you’re getting a very nice combination of yield and growth here. Better yet, the rather low payout ratio of 21.2% gives the company all kinds of flexibility and leeway on the dividend and its future growth. That’s great news in an environment that might be seeing some slowing in the luxury home furnishings arena.

This stock is down 34% from its 52-week high, and I’d argue that it looks undervalued right now.

In fact, I did make that very argument on the channel recently when we put out a full analysis and valuation video on the business. In that video, the estimate of intrinsic value for the business came out to slightly under $196/share. With shares currently trading hands for about $147/each, you’re looking at a big gap between the current price and the potential value.

The market got irrationally exuberant about this stock not long ago. But now it’s become downright depressed about it. That kind of mood change is when I like to step in with capital. If you’re looking for a high-quality, debt-free niche retailer that has fantastic dividend metrics, Williams-Sonoma ought to be in your line of sight.

— 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.