Compounding your wealth and your passive income at high rates over the long run is the game. And dividend growth investing is the name of that game.

In my view, dividend growth investing is the only way to invest. I’ll tell you why.

High-quality dividend growth stocks represent equity in world-class businesses that pay reliable, rising dividends to their shareholders.

They’re able to do that because they’re producing reliable, rising profits.

And they’re producing reliable, rising profits because they’re providing the world with the products and/or services it demands. It just makes sense.

I mean, what would be the opposite of dividend growth investing? Investing in low-quality businesses that don’t produce any profits at all and can’t pay any dividends.

You definitely don’t want to do that. I’ve been a dividend growth investor myself for more than a decade now.

This strategy was crucial to my ability to go from below broke at age 27 to financially free at 33.

By the way, I explain exactly how I achieved financial freedom in just six years in my Early Retirement Blueprint. If you’re interested, you can download a free copy of my Early Retirement Blueprint here.

As great as high-quality dividend growth stocks can be, though, not all dividend growth stocks are good buys at all times. Focusing on the very best long-term ideas right now is what this article is all about.

Today, I want to tell you my top five dividend growth stocks for May 2022. Ready? Let’s dig in.

My first dividend growth stock pick for May 2022 is Domino’s Pizza (DPZ).

Domino’s is a multinational pizza restaurant chain.

I love pizza. I love making money. Why not combine the two? Well, Domino’s gives you the chance to do just that. It’s the largest pizza company in the world. Domino’s offers a simple-to-understand business model selling a timeless food staple. You might think that successful long-term investing must be more complicated than that. Not really. This is a company that has compounded its revenue at 11.1% annually and its EPS at 24.3% annually over the last decade. If every business I invested in grew like that, I’d be a very, very happy investor.

As you might imagine, outstanding business growth has led to outstanding dividend growth.

Domino’s has increased its dividend for 10 consecutive years. This relatively short track record is off to a booming start. Their five-year DGR is 19.9%. Even their most recent dividend increase came in at 17%. Now, the stock only yields 1.2%. This is more of a compounder than an income play. But with a payout ratio of only 32.5%, I suspect that Domino’s will continue to increase its dividend at a high rate for many years to come.

This stock looks modestly undervalued after a 33% drop from its 52-week high.

We’ll be featuring Domino’s in an upcoming full analysis and valuation video, which will highlight the appeal of this name after a stunning 30% drop YTD. So keep an eye out for that video. Let me be clear, though. This isn’t the kind of stock you buy at 65 years old with the intention of getting income out of it today. But if you’re a younger investor who can let this business grow for you over the next few decades, it can do remarkable things. This is a stock that’s up nearly 1,000% over the last 10 years alone. And I think there’s a lot of juice left in this rocket.

My second dividend growth stock pick for May 2022 is Fifth Third Bancorp (FITB).

Fifth Third is a diversified regional bank holding company.

The banking business model is one of the oldest business models in the world. There are reasons why it’s been so enduring. And much of what has created this legendary level of endurance remains. Banks don’t grow at super high rates. Instead, it’s just this steady plodding along that really adds up over time. In Fifth Third’s case, we’re talking about a 2.5% CAGR for revenue and a strong 9.4% CAGR for EPS over the last decade.

Strong bottom-line growth. But even better dividend growth.

Indeed, Fifth Third has increased its dividend for 11 consecutive years. Their 10-year DGR is 14.8%, which is actually pretty fantastic. And even though that does exceed EPS growth over that same time frame by a good margin, the payout ratio is still only at 32.2%. So they could expand that payout ratio even further. You also get a 3.1% yield layered on top of that double-digit dividend growth, providing dividend growth investors a nice combination of yield and growth here.

Looking for a good deal on a great stock? Well, here you go.

The business is selling for less than $39/share. I think it’s worth over $47/share, and our recent full analysis and valuation video on Fifth Third explains why. Is Fifth Third the kind of business I’d want to bet the whole farm on? No. But this is a great regional bank offering a market-beating dividend growing at a double-digit rate. And it looks downright cheap right now. It’s tough to complain about any of that.

My third dividend growth stock pick for May 2022 is Huntington Ingalls Industries (HII).

Huntington Ingalls is a major American defense company.

What do we know about defense companies in 2022? Their stocks are going gangbusters. Two big reasons for that. First, these stocks came into the year super cheap. They were due for a rebound anyway. The second reason, the more obvious reason, is war breaking out in Eastern Europe after Russia invaded Ukraine.

But Huntington Ingalls has been doing very, very well over the last 10 years, even without any major war propelling results. Their CAGR for revenue is only 4% over that time frame. However, EPS has compounded at 24.8% annually over the last decade.

This is an under-the-radar dividend growth gem.

The company has increased its dividend for 10 consecutive years. And I’m extremely confident that this is just the start. The five-year DGR is 20%. Yes, 20%. That’s without war. Just imagine what increased spending on defense can do. The stock also yields a respectable 2.1% which does beat the market. And the payout ratio is at only 28.3%. So this dividend has tons of room to head way higher.

This stock is up 20% YTD, but it started out very cheap. I think there’s more room to run.

I highlighted Huntington Ingalls back in early January as an undervalued dividend growth stock to consider for long-term investment. In that video, one thing might really pop out. It’s this: Huntington Ingalls has a backlog that was, at that time, more than six times the company’s entire market cap! I estimated fair value for the business to be almost $230/share.

Shares are currently trading hands for about $222/each. So even after a run, it still looks at least slightly undervalued. And I’d argue I was being cautious with the valuation. The whole defense space has gone nuts this year, but this is one defense stock that still looks attractively valued. Take a look, if you haven’t already.

My fourth dividend growth stock pick for May 2022 is JPMorgan Chase & Co. (JPM).

JPMorgan Chase is a financial holding company that operates as one of the largest financial institutions in the United States.

Two banks on the list today? Yep. That’s for three reasons. First, it’s just a great business model. It’s literally in the business of money. Second, earnings season is upon us and banks have shown up with solid results. Third, despite those solid results, the bank stocks have recently cratered.

When you have a combination of strong business results and weak stock results, that can add up to excellent long-term investment opportunities. Keep in mind, this bank has grown its revenue at a compound annual rate of 2.6% and its EPS at a compound annual rate of 12.8% over the last 10 years. Nothing weak about that.

If you believe in the future of the US, you should believe in the future of this bank and its dividend.

JPMorgan Chase is symbiotic with the US. It’s a critical part of the US financial infrastructure. I’d argue that this bank may as well be the avatar of the US financial system at this point. They’ve increased their dividend for 11 consecutive years, with a 10-year DGR of 16.5%. And even with all of that double-digit dividend growth, the payout ratio remains a low 26.0%. Plus, the stock offers a market-beating 3.2% yield on top of it.

This stock is down 22% YTD. And I think it’s seriously undervalued.

We put out a full analysis and valuation video on the bank in mid-April, showing why shares could be worth $156.56/each. With the stock currently priced at about $127, the stock looks 23% undervalued right now. There’s a lot of potential upside here on a world-class bank that should continue to prosper as long as the US prospers. I think a long-term dividend growth investor could do a lot worse than picking up shares in JPMorgan Chase when they’re priced at less than $130/each.

My fifth dividend growth stock pick for May 2022 is Magna International (MGA).

Magna is a multinational mobility solutions and technology company.

Magna is mega. Mega big. Mega successful. They work with pretty much every major auto manufacturer in the world, producing a range of components for their cars. And as mobility becomes more important and more complex, Magna becomes an even more in-demand partner.

Magna’s growth has been a bit lumpy, largely due to the way in which the pandemic has impacted the business. Still, they’ve put up a 1.8% CAGR for revenue and 5.7% CAGR for EPS over the last decade. But if you back things up to before the pandemic, Magna generated a CAGR of over 14% for EPS for the five-year period between FY 2012 and FY 2016.

But what’s not lumpy? Their dividend growth.

The company has increased its dividend for 13 consecutive years. The 10-year DGR is 13.2%, which is great. Plus, the stock even offers a 2.9% yield. It’s hard to go wrong with a near-3% yield being paired with a double-digit growth rate. And the payout ratio of only 36% shows a well-covered dividend, even with the company not firing on all cylinders. When the numbers bounce back, that payout ratio will likely fall and the dividend’s coverage will look even better.

This stock is down 25% YTD. To my eye, it now looks substantially undervalued.

We’re putting the finishing touches on a full analysis and valuation video on the business. In that video, you’ll see that my estimate of intrinsic value on Magna comes out to over $80/share. Shares are currently trading hands for about $62/each. This stock looks like it’s more than 30% undervalued. It might be one of the most undervalued stocks in the market. I’d recommend to take a close look at Magna. This stock should be on your radar, if not in your portfolio.

— 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.

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