My Top 5 Dividend Growth Stocks For August 2022

“Buy the dip.”

“Be greedy when others are fearful.”

Sage advice. But these quips are easier said than done. In real life, fear tends to takes over when volatility cranks up. And it’s difficult to invest when everyone is freaking out.

But being a dividend growth investor, like me, makes it a lot easier. One reason why? Price and yield are inversely correlated. All else equal, lower prices result in higher yields.

That’s more passive dividend income on the same invested dollar.

And because I focus on high-quality dividend growth stocks, I can sleep well at night while I own shares in some of the best businesses in the world.

I don’t fear world-class businesses going out of business. So being able to buy great stocks on sale… is fantastic.

And while you wait for those stock prices to head higher over time, the dividends continue to flow and grow.

Combining this mentality with the dividend growth investing strategy helped me 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 are, though, you still have to be selective when it comes time to allocate capital. Not every stock is a good buy at every time.

Focusing on the very best long-term ideas right now is what this video is all about.

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

My first dividend growth stock pick for August 2022 is Aflac (AFL).

Aflac is a US-based supplemental insurance company.

Insurance has long been, and still is, one of my favorite business models. That’s largely because of the float, which is the capital that builds up as a result of a time delay between collecting premiums and paying out on claims. This float can produce a lot of profit for an insurance company. Oftentimes, the float is more profitable for an insurance company than the core insurance operations.

If you can run a great insurance business with prudent underwriting, and properly manage a large float, you have a pathway to tremendous success. While Aflac’s revenue has basically gone nowhere over the last decade, EPS has compounded at an annual rate of 8.6%.

Great profit growth has unsurprisingly led to great dividend growth.

Aflac has increased its dividend for 40 consecutive years, easily qualifying it for its status as a vaunted Dividend Aristocrat. The 10-year DGR is 7.9%, which lines up pretty close to EPS growth. With that high-single-digit dividend growth, you get a yield of 2.9% on the stock. A near-3% yield combined with a near-8% dividend growth rate? That’s very solid, in my opinion. And with a payout ratio of 26.2%, this dividend is highly secure.

Great business, great dividend, great stock, great valuation.

This business can generate plenty of bottom-line and dividend growth, even absent top-line growth. That has been mostly due to a combination of margin expansion and share buybacks. Just imagine what they could do with better revenue growth. Meanwhile, the market has been pricing in very low expectations here. The P/B ratio of 1.2 is slightly lower than its own five-year average of 1.3. The P/E ratio of 9.1 is also low, even by Aflac’s historical standards. Their five-year average P/E ratio is 9.5.

This is a stock that never really commands a high earnings multiple, which has given an investor plenty of time to build a position. And building a position would have been a wise thing to do. It’s been a great long-term investment. The stock has compounded at nearly 13% annually over the last decade. It’s difficult to go wrong when you buy a slice of a great business when it’s priced to do very little. Aflac is set up to underpromise and overdeliver here over the next decade. Take a good look at it.

My second dividend growth stock pick for August 2022 is Best Buy (BBY).

Best Buy is a North American consumer electronics and appliances retailer.

This company really surprised me the first time I looked at it. How does an an electronics retailer survive – no, thrive – in an environment where e-commerce has been taking over? Well, they do that by adapting, embracing e-retail, and becoming an omnichannel retailer. Simultaneously, their Renew Blue program, initiated in 2012, improved the business across the board. Leaning in to changes rather than doubling down on tradition has served them well. Revenue has compounded at an annual rate of 2.5% over the last decade, while EPS grew at a CAGR of 25.9%.

Another thing surprising about Best Buy? Their dividend.

Their dividend metrics are better than a lot of more well-known names out there. For example, they’ve increased their dividend for 19 consecutive years. That’s actually a pretty lengthy track record. The 10-year DGR is 15.8%, which is obviously great. And the stock yields a juicy 4.6%. It’s not often that you see a yield this high paired with this kind of double-digit dividend growth rate. Plus, we see that it’s a well-covered dividend. The payout ratio is only 40.5%, based on midpoint guidance for this fiscal year’s adjusted EPS.

Best Buy is a surprisingly impressive business. Is the stock a best buy? Maybe.

Nobody can tell you what a stock will do over the next week, month, or year. But what I can tell you about this stock is that it’s attractively valued after getting cut nearly in half from its 52-week high. The P/E ratio is just 8.5. That compares extremely favorably to its own five-year average of 15.1. The stock is almost priced for terminal decline in the business, which simply doesn’t line up with the reality of the numbers. We put out a video not long ago highlighting this stock, estimating intrinsic value of the business at $105.70/share. With the stock currently treading the $77 area, it could very well be a “best buy”.

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

Huntington Ingalls is a major American defense company.

Sovereign defense is secular growth. You have built-in demand for sovereign defense products and services, based on the inherences of human nature. And because these defense products and services become increasingly complex and expensive, you have a natural amount of cost progression layered on top of built-in demand. A powerful one-two punch. This is part of why this company has grown its revenue at a compound annual rate of 4% and its EPS at a compound annual rate of 18.6% over the last decade.

Secular defense growth. Secular dividend growth.

The company has increased its dividend for 10 consecutive years, which is as long as the track record could possibly be – the company was spun off in 2011. The five-year DGR is 17%. Fantastic. And you even get a pretty good yield here, with the stock offering a 2.3% yield. This dividend also looks very safe to me, based on the payout ratio of 35.4%.

This under-the-radar stock really should be on your radar. Pun intended.

Huntington Ingalls is the only company that manufactures certain products for the US military, such as nuclear-powered aircraft carriers. And with geopolitics currently running hot, this company is unlikely to see orders slow down. Actually, it’s the opposite – their backlog is nearly $50 billion. That’s more than five times the size of the company’s entire market cap. We will have a full analysis and valuation video coming out soon, if it’s not out already, on Huntington Ingalls, highlighting what an appealing long-term idea this is for dividend growth investors.

In that video, the intrinsic value estimate for the business comes out to $239.63/share. The stock is currently priced at around $209. Potential 15% undervaluation on a great business benefiting from current world affairs with a $50 billion backlog? I think you could do a lot worse than that.

My fourth dividend growth stock pick for August 2022 is Altria Group (MO).

Altria is one of the world’s largest tobacco companies.

This is a “sin” stock. Tobacco is obviously not necessary in any way. Totally discretionary. However, a large chunk of our society is discretionary in nature. There’s very little about our modern-day lives that equate to simple subsistence and necessity. What’s great about this particular business is that it benefits from a spectacular level of pricing power, owed to the fact that it sells addictive products with inelastic demand. This is why, even with its industry in secular decline, Altria has posted up a 2.1% CAGR for revenue and a 9.4% CAGR for EPS over the last decade.

The reports of Altria’s death are greatly exaggerated. We can see that in the dividend.

This dividend is definitely not dying. To the contrary, Altria has increased its dividend for 52 consecutive years. The 10-year DGR is 8.4%, which is solid in and of itself. However, it’s especially strong when you see that the stock yields a sky-high 8.2%. You will almost never see a yield this high paired with a dividend growth rate this high.

That said, I do think that Altria’s dividend growth rate will slow to a low-single-digit rate. But that’s more than enough when you’re getting an 8%+ yield to start with. And while a yield this high usually indicates an unsustainable dividend, Altria’s payout ratio of 74.1%, based on this fiscal year’s midpoint guidance for adjusted EPS, indicates that the dividend is fully sustainable.

This has long been a cheap stock. But it’s even cheaper than usual right now.

It makes sense for Altria’s stock to have low multiples. Tobacco usage is in secular decline. I get it. But Altria remains profitable, and it continues to grow – albeit slowly. The thing is, the multiples have compressed below even Altria’s low standards. Its P/CF ratio, for instance, of 9.5 is well off of its own five-year average of 14.3. We’re putting the finishing touches on a full video on Altria, which will analyze and value the business.

This video will show why shares could potentially be worth nearly $48/each. The stock is currently below $44. Decent upside. But the bigger story is that 8%+ yield. For income-oriented dividend growth investors, or even investors looking to sprinkle in some higher yield in a portfolio, Altria is very interesting here. Take a look at it.

My fifth dividend growth stock pick for August 2022 is Starbucks (SBUX).

Starbucks is the world’s leading retailer of high-quality, specialty coffee products.

We have a handful of companies in the world where when you say their name, your mind immediately conjures up images of their products. Starbucks is one of those companies. Likewise, when you’re in the mood for one of those products, your mind immediately goes right back to the company’s name. It’s a circular. It’s mindshare. But it’s actually even better than that, because Starbucks pulls off a neat trick that few other companies have ever been able to manage.

They provide both a high-quality product and a high-quality experience – serving food and beverages in an experiential lounge setting. In a world where companies are trying to successfully provide a product or an experience, Starbucks does both. This is why the company has compounded its revenue at 9.1% annually and its EPS at 16.4% annually over the last decade.

Impressive business growth has paved the way for impressive dividend growth.

Starbucks has increased its dividend for 12 consecutive years, with a 10-year DGR of 20.7%. Gotta love that double-digit dividend growth. And because the stock has been so weak of late, the yield has risen to 2.4%. That’s 50 basis points higher than its own five-year average. With the payout ratio sitting at 52.4%, this strikes me as a safe dividend. As long as Starbucks continues to sling out ever-more products at ever-higher prices, they should be able to continue slinging out an ever-higher dividend.

This is one of the world’s most renowned businesses. And I think it’s undervalued.

Starbucks has the kind of brand recognition that few businesses have ever enjoyed, or ever will enjoy. It’s a terrific business with excellent long-term prospects. I simply don’t see any future in which consumers all over the world no longer desire the cheap luxury that Starbucks offers through its beverages and foods served in a relaxing lounge.

We’re putting together a full analysis and valuation video on the business – a video which should be out soon, if it’s not already. In that video, we put forth the case as to why the business could be worth slightly over $95/share. The stock is currently priced at around the $81 mark. I see the potential for plenty of upside while you collect a market-beating dividend that has been growing at a double-digit rate. Tough to dislike any of that.

— 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.