These 6 Stocks Are Relentlessly Increasing Their Dividends

Living off of passive income is the dream. And I’d argue dividends are the the best form of passive income, because of the passivity of the income.

Nothing is more passive than waking up to a fresh new dividend that got deposited into your account while you slept. But this dream can turn into a nightmare if your income can’t grow and keep up with inflation.

Everything is getting more expensive over time. The good news is, high-quality dividend growth stocks have you covered. That’s right. The key is to not just buy dividend stocks but dividend growth stocks.

These stocks represent equity in world-class businesses that pay reliable, rising dividends to their shareholders.

If the businesses you’re invested in are consistently increasing their dividends every year, you’re effectively getting annual “pay raises”.

And these boosts in your passive dividend income allow you to keep up with, or even exceed, inflation. That keeps the dream alive.

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 we have to cover today is the one that was announced by Caterpillar (CAT).

Caterpillar just increased their dividend by 8.1%.

Inflation in the US is running at about 8%. Caterpillar is giving their shareholders 8% more dividend income. You see how that works? Living off of dividends is good. But living off of growing dividends is much, much better. Because if your passive income isn’t growing, it’s shrinking. You will fall behind if your income can’t continue to ladder up. And this is why investing in great businesses that can increase their dividends like clockwork is key.

This is the 29th consecutive year in which the heavy machinery company has increased its dividend.

This Dividend Aristocrat has proven itself to have the durability necessary to consistently pay and, more importantly, increase its dividend to shareholders through the economic cycles. The 10-year DGR is 9%, so this most recent dividend increase was pretty much in line with what you’d expect. And with the yield now at 2.7%, 30 basis points higher than its own five-year average, you’re getting a nice combination of yield and growth here. Even after this most recent increase, the payout ratio of 40.3% indicates that the dividend is healthy and in a position to continue growing.

A 14% YTD pullback in the stock’s price has created an acceptable valuation.

I use the word “acceptable” on purpose. Is this stock super cheap? No. All the same, it’s not particularly expensive. I think it’s at a level that’s really quite acceptable and fair. Most basic valuation metrics are within a close enough range to their respective recent historical averages. For instance, the P/S ratio of 1.9 lines up exactly with its own five-year average. On the other hand, the P/CF ratio is running ahead of its own five-year average. But then you’ve got the yield higher than what it typically is. This isn’t a stock that I’d be backing up the truck on, but this Dividend Aristocrat looks better than it has in nearly two years.

The next dividend increase we have to have a conversation about is the one that came courtesy of KLA Corp. (KLAC).

KLA just increased their dividend by 23.8%.

Boy, you’ve gotta love that. While people are losing their minds over inflation running at 8%, KLA is giving out almost 24% more income to their shareholders. That’s about three times the annual inflation rate in the States right now. How awesome is that? And what did these shareholders have to do in order to get this massive pay raise? Nothing, other than hold shares. It doesn’t get any easier than that.

This marks the 13th consecutive year of dividend increases for the the semiconductor capital equipment company.

KLA has been handing out impressive dividend increases for years, but this most recent increase was a whopper. It compares very favorably to their 10-year DGR of 12.5%. And it boosted the yield up to 1.8%, which is right in line with the stock’s own five-year average. Nothing wrong with a market-beating yield and double-digit dividend growth. With the payout ratio sitting at 25.2%, we can be very confident that this dividend is headed even higher in the years ahead.

This stock has been tortured this year, down 32% in 2022. And that’s made the valuation rather reasonable.

To my eye, shares looked awfully expensive when they were going for over $400/each. At less than $300/each now, though, shares have become reasonably valued. The P/CF ratio of 15.3 is decently off of its own five-year average of 18.0. Meantime, the P/E ratio of 14.4 is severely disconnected from its own five-year average of 22.0, but any near-term contraction in earnings would cause the P/E ratio to rise and become more aligned with its norm.

And that’s really the question here with some of these semi cap equipment companies – what kind of near-term earnings cliff are we potentially looking at? Either way, KLA is a long-term winner, even if the near-term earnings picture could be problematic. And with the payout ratio being so low, I don’t see the dividend as being in any kind of danger, even if the business does experience a slowdown over the next year or so.

The third dividend increase I have to cover today is the one that came in from Kroger (KR).

Kroger just increased their dividend by 23.8%.

Boom. Another 23.8% dividend increase by another great business. How can you not love this stuff? I don’t recall ever getting a 24% pay raise at my day job, back when I still had a day job. And any pay raises I did get required a lot of hard work on my part. Yet Kroger shareholders get to sit on their hands and collect a near-24% increase in their passive dividend income without lifting a finger. Beautiful.

The supermarket chain has now increased its dividend for 17 consecutive years.

With a 10-year DGR of 13.8%, Kroger has clearly demonstrated a knack for reliably handing out double-digit dividend increases to shareholders. Even with 8% inflation, you’re still getting ahead when your income is growing like this. The stock now yields a respectable 2.2% after this dividend increase. A payout ratio of 36% shows us a well-covered dividend that is almost certainly going to continue growing at a double-digit rate in the years to come.

This is a rare stock that’s actually up on the year, and the valuation has gotten ahead of itself.

It’s gotten ahead of itself in the most literal way possible, as pretty much every basic valuation metric you can look at is running ahead of its respective recent historical average. For example, the P/E ratio of 16.6 isn’t all that high in absolute terms. But relative to its own five-year average of 14.3, it’s heavy. It’s the same story for every other metric. The stock isn’t terribly expensive.

But it’s also not the super cheap name it once was. That said, this big dividend increase comes on the back of some fantastic quarters, so a rerating on the multiples may have been past due. I think it’s certainly a name to keep on the list and take a very good look at on any kind of weakness.

The fourth dividend increase we’ve gotta have a quick conversation about is the one that was announced by Morgan Stanley (MS).

Morgan Stanley just increased their dividend by 10.7%.

This company is quickly becoming an all-star dividend growth stock in the financial space. They keep bringing the goods, as this double-digit dividend increase follows up last year’s 100% dividend increase. While the follow-up isn’t quite as impressive as the first performance, I’ll take this kind of encore any day of the week.

This is the 9th consecutive year of dividend increases for the financial services company.

The 10-year DGR is 26.5%. That 100% dividend increase last year skews the long-term average here, but it does look like Morgan Stanley is keenly committed to growing its dividend at a double-digit rate, which is just fine by me. The stock yields 4% now, which is an incredible 160 basis points higher than its own five-year average.

Morgan Stanley’s dividend growth has obviously outpaced the stock price growth, leading to this discrepancy. And that might be where the opportunity lies. Meanwhile, a 39.4% payout ratio indicates a healthy dividend primed for more double-digit growth.

This stock started off 2022 reasonable in terms of the valuation. But the 23% YTD fall has created a very compelling setup.

The P/E ratio is below 10 right now. Whenever there’s a single-digit P/E ratio, that tends to get my attention. Now, this stock never really commands a very high earnings multiple. But its five-year average P/E ratio is still 11.4. We’re well below that. Morgan Stanley is one of Wall Street’s most respected firms. It’s an industry giant. A sub-10 P/E ratio, a 4% yield, and a double-digit dividend raise. It’s tough to dislike that setup.

Next up, let’s quickly talk about the dividend increase that came in from Target (TGT).

Target just increased their dividend by 20%.

See, this is why dividend growth investing is so powerful. Our expenses are rising. Our expenses will continue rising. This is reality. And so we have to make sure our income can keep up with that, or rise even faster. Well, when you’re invested in high-quality businesses handing out generous dividend increases, year in and year out, like clockwork, you put yourself in a great spot to do just that.

The department store chain has now increased its dividend for 55 consecutive years.

Bullseye. Target has been on target for more than five straight decades. That’s the kind of consistency you want out of a business. Because, let’s face it. Bills are very consistent. The 10-year DGR for Target is 11.1%, so they’re no stranger to double-digit dividend increases. And the stock now yields 3%, which is a good 50 basis points higher than the stock’s own five-year average yield. With the payout ratio sitting at 35.7%, Target has the flexibility necessary to continue hiking the dividend at a high rate for many years to come.

With the stock down nearly 40% YTD, the valuation has become a lot more interesting.

To be honest, I thought Target was overvalued for the entirety of 2021. I mean, nearly $270/share for Target? That was kinda crazy. But shares are now going for about $142/each. And that compression in the stock price has created a more favorable valuation for long-term dividend growth investors.

The P/E ratio of 11.8 would make you think it’s downright cheap here, especially compared to its own five-year average of 17.0. However, earnings are still coming down from the pandemic-induced sugar high. I think Target is in a buyable zone once again for the first time in a long time, but it’s also not exactly a name I’d be backing up the truck on right now.

Last but not least, I want to highlight the dividend increase that was announced by UnitedHealth Group (UNH).

UnitedHealth just increased their dividend by 13.8%.

UnitedHealth is practically a lock for big dividend increases at this point. You can almost set your watch to it. As the sun rises and sets, UnitedHealth increases its dividend at a high rate each summer. If you’re a shareholder, you’ve gotta love this. This is the easiest pay raise you’ll ever get in your life.

This marks the 13th consecutive year of dividend increases for the managed healthcare and insurance company.

The 10-year DGR of 24.8% shows us that UnitedHealth is no stranger to all of this. On the flip side, the stock’s yield of 1.3% is the price you pay for that reliable high rate of dividend growth. But with the payout ratio at only 36.1%, the company is not stretching to pay this dividend. To the contrary, I expect UnitedHealth to continue growing the dividend at a high rate, just as it has been.

UnitedHealth stock is actually up this year. Great for current shareholders preserving wealth. Not so great for those looking to accumulate.

This stock has been so strong, for so long. An excellent name for total return. It’s up more than 800% over the last decade. What a monster. However, a lot of multiples do look extended right now. For example, the P/E ratio of 28.3 is rich in both absolute and relative terms. The market does usually assign UnitedHealth a premium earnings multiple, but we’re well above its five-year average P/E ratio of 22.1. Every other multiple also looks high right now. Love the business. Love the stock. Don’t love the valuation. However, if a meaningful pullback were to occur, it’d definitely be a name to take a good look at.

— 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.