I’ve said it before. I’ll say it again.

High-quality dividend growth stocks are like the golden geese laying ever-more golden eggs. Owning shares in world-class enterprises that pay reliable, rising cash dividends to shareholders is like a cheat code to life.

I’ll break it down for you. Getting paid while you sleep is great. But getting pay raises while you sleep, on that same passive income?

Way, way better. Why?

Well, because inflation is making everything more expensive over time. And you have to make sure your passive income can keep up with, or even exceed, the rate of inflation. That keeps you ahead of the game. And it allows you to sleep well at night… while you collect that passive income growing all by itself.

Dividend increases are at the heart of what makes dividend growth investing so powerful for long-term investors. This is dividend growth investing in action.

Today, I want to tell you about 6 dividend growth stocks that just increased their dividends.

Ready? Let’s dig in.

The first dividend increase I have to tell you about is the one that came from AbbVie (ABBV).

AbbVie just increased its dividend by 5%. In almost any other world, except the one we’re temporarily living in, this kind of dividend increase easily exceeds the rate of inflation. And I believe that inflation will be tamed in the foreseeable future.

Meanwhile, this is still a solid 5% pay raise for shareholders who did nothing other than, well, hold shares. That’s about as easy as it gets. This is the 11th consecutive year in which the biopharmaceutical company has increased its dividend.

So we have a bit of a technicality here. As an independent, standalone company, AbbVie has increased its dividend for 11 consecutive years. But AbbVie is actually a Dividend Aristocrat, which is a status usually reserved for certain stocks with at least 25 consecutive years of dividend increases.

It’s a Dividend Aristocrat because AbbVie’s storied dividend growth track record dates back to when they were with former parent company, Abbott Laboratories (ABT). No matter how you slice it, AbbVie has been as reliable as it gets in the healthcare space. The five-year DGR is a monstrous 17.5%. And you’re pairing that with the stock’s outsized yield of 4%. Plus, we have a low 42.7% payout ratio here.

AbbVie looks fairly valued to me here, but you could do a lot worse in this market. Most basic valuation metrics are pretty close to their respective recent historical averages. I don’t think you back the truck up here. But if your portfolio could use more exposure to this space, AbbVie is a long-term winner.

Our last analysis and valuation video on AbbVie went live about a year ago, and that video showed a business worth an estimated $123.17 per share. The dividend has moved up since then, which increases the value of the shares, but I basically see the price and value as pretty well aligned.

Still, AbbVie is a blue-chip name that makes almost any portfolio better. And if there’s a pullback, it’s definitely something to have on your radar for potential purchase.

The second dividend increase we have to talk about is the one that was announced by Agree Realty Corporation (ADC).

Agree Realty just increased its dividend by 2.6%. A 2.6% dividend increase in a world in which inflation is running about three times higher? What gives? Well, I’ll tell you.

Agree Realty tends to increase its dividend twice per year. Indeed, the company increased its dividend back in April by 3.1%. Now we’re talking. The retail real estate investment trust has increased its dividend for 10 consecutive years.

Multiple dividend increases per year is enticing. But wait. There’s more. This REIT pays its dividend monthly. So that’s frequent dividends and pay raises, combined. Nice!

The five-year DGR is 6.6%, and they’ve been pretty consistent with that kind of growth. You pair that with the stock’s yield of 4.2%. Even in a rising rate environment, that kind of income goes far, especially when it’s highly likely that the dividend goes up again in six months. They have the room for it, too, as the $0.97 in adjusted funds from operations per share for Q2 FY 2022 easily covers the new monthly dividend of $0.24 per share.

This stock has been a strong performer this year, but it’s still down quite a bit from its pre-pandemic level. The stock is down less than 4% YTD. With the S&P 500 in bear market territory this year, that kind of relative outperformance is remarkable.

However, this was an $80 stock in early 2020. It’s now $68. And I don’t see anything wrong with the business to warrant this ongoing disconnect. Now, if Agree Realty was overvalued at $80/share, the drop would make sense. But it didn’t look expensive at $80/share. It’s just that it now looks cheap at $68/share.

To provide some perspective on the disconnect, the P/CF ratio is 17.6 right now. That’s substantially lower than its own five-year average of 21.1. If you’re looking for a great REIT yielding 4%+ and paying its growing dividend monthly, Agree Realty has to be on your mind.

Next up, let’s have a conversation about the dividend increase that came courtesy of A.O. Smith Corp.(AOS).

A.O. Smith just increased its dividend by 7.1%. I know. Inflation is running a bit hot right now. And that makes this 7.1% dividend increase seem a bit less impressive. But let’s be real here.

Back when I still had a day job, my boss wasn’t exactly handing out 7% pay raises like candy. Getting that kind of bump in my pay was really, really difficult. Yet A. O. Smith shareholders just got a 7% bump in their pay for doing absolutely nothing other than not sell their shares. You’ve gotta love that!

This marks the 29th consecutive year of dividend increases for the water heating and water treatment company. Another Dividend Aristocrat. Shouldn’t be a surprise. This is what Dividend Aristocrats do – they increase their dividends like clockwork.

A. O. Smith’s 10-year DGR is 21.3%, although there has been a noticeable deceleration in dividend growth. For example, last year’s dividend increase was 7.7%. It’s a tough and uncertain environment right now, so I don’t see anything wrong with cutting them some slack.

Besides, a high-single-digit dividend growth rate is enough to get the job done on a stock that currently yields 2.2%. And the payout ratio is 38.7%, based on midpoint adjusted EPS guidance for this fiscal year, indicating a safe dividend positioned for more clockwork-like growth.

This Dividend Aristocrat is down a stunning 35% YTD, and I think it’s materially undervalued. A.O. Smith might be the best long-term investment opportunity in today’s article. The valuation is super compelling. Based on that aforementioned guidance, the forward P/E ratio is 17.5.

The stock’s five-year average P/E ratio is 24.9. Huge gap here. Now, adjusted EPS might not be telling the whole story, but we can go straight to sales and see something similar playing out – the current P/S ratio of 2.3 is well off of its own five-year average of 3. In my opinion, A. O. Smith has been unjustly punished by the market this year. Take a very close look at this Dividend Aristocrat, if you haven’t already.

The fourth dividend increase I want to tell you about is the one that came in from McDonald’s (MCD).

McDonald’s just increased its dividend by 10.1%. That’s what I’m talking about. Inflation-beating dividend raise, even in an inflationary environment unlike one we’ve seen in four decades. McDonald’s is selling more products, to more people, at higher prices. And that allows them to pay ever-higher dividends to shareholders. I’m lovin’ it.

The multinational fast-food chain has increased its dividend for 47 consecutive years. This is a golden goose laying ever-more golden eggs. A classic blue-chip dividend growth stock that can be one of the crown jewels of a portfolio.

The 10-year DGR is 7.2%, so we can see that McDonald’s is stepping up for shareholders right now by giving them a larger-than-average dividend increase. And with a 2.2% yield, you’re getting a compelling mix of yield and growth here – particularly considering the quality and visibility of the business.

The one thing I’m not in love with here is the payout ratio – at 74.9%, it’s elevated. Not dangerous. Just elevated. This is one of the rare stocks that’s actually up this year, so I’d look for a pullback before getting in.

Great business. Great stock. Certainly a great dividend. Not a great valuation, though.

Most basic valuation metrics are running ahead of their respective recent historical averages. And in a market where you’ve got names left and right that have been absolutely demolished this year, it’s tough to chase McDonald’s. On a relative basis, it’s not a top idea for me at this point in time. But if you get a good-sized pullback, strongly consider taking a bite out of McDonald’s stock. With consumers trading down on food in this environment, McDonald’s has been, and should remain, a beneficiary. Great, great long-term holding for dividend growth investors. But I would like to see a more attractive valuation.

The fifth dividend increase we have to go over today is the one that came courtesy of Bank OZK (OZK).

Bank OZK just increased its dividend by 3.1%. Another dividend increase well under the current rate of inflation?

What’s up with this?

Well, as with Agree Realty, mentioned earlier, Bank OZK tends to increase its dividend multiple times per year. To that point, this is the third time in 2022 that Bank OZK has increased its dividend. All in all, the dividend is actually up 13.8% YOY. How about that?

The regional bank has increased its dividend for 26 consecutive years. This has long been one of my favorite banks. It flies way under the radar, but it’s such a consistent performer in terms of the business, stock, and dividend.

The 10-year DGR is 18.8%, so you can see that double-digit dividend growth is nothing new for the firm. And the stock yields 3.1%. You rarely get a yield that high along with a dividend growth rate that high. Plus, the bank has a very healthy payout ratio, at only 30.2%. I see the bank continuing to increase its dividend multiple times per year.

Despite good performance this year, I think the stock still looks attractively valued. We’ve got a P/E ratio of 9.8 here. Whenever I see a single-digit P/E ratio, that immediately gets my attention.

For perspective on this, it’s quite a bit lower than its own five-year average of 11.1. There’s also a very undemanding P/B ratio here. Most banks get a P/B ratio of between 1 and 2, depending on the economic cycle and the quality of the bank.

Bank OZK’s P/B ratio is 1.2. So we’re on the low end of that range. There’s very little to dislike about Bank OZK. Low valuation, great yield, high dividend growth. Take a good look at it, if you haven’t already.

Last but not least, I want to highlight the dividend increase that was announced by Visa (V).

Visa just increased its dividend by 20%. Don’t you just love it? Visa shareholders were happily collecting a dividend at one rate, then they suddenly see that dividend rate rise by 20% all by itself.

Didn’t lift a finger, yet got a 20% bump in passive income. It’s like the gift that keeps on giving, except it keeps giving more. I mean, that’s what dividend growth investing is all about. Passive income is cool. But growing passive income is way cooler. This marks the 15th consecutive year of dividend increases for the multinational financial services company.

Visa is a dividend growth monster, with the emphasis on growth. If this 20% dividend increase didn’t already clue you in, the 10-year DGR of 21.7% ought to. Visa hands out 20% dividend increases in such a consistent, carefree manner, it’s almost as if every company could do this. They make it look that easy.

Of course, not every company can do this, and that’s what makes Visa special. All that said, Visa’s tilt toward growth over income does, perhaps, make it more suitable for younger dividend growth investors who can sacrifice near-term income for long-term growth. Indeed, the stock’s yield is only 0.9%.

On the other hand, the payout ratio is just 26.5%. Why is it so low, even after all of these big dividend increases? Because Visa continues to grow its EPS at a high rate. I see no reason why any of this will change moving forward.

Is Visa cheap? Not in absolute terms, no. But why would it be cheap?

Visa deserves a premium multiple. By the way, it’s been awarded a premium multiple for as long as I’ve been investing. It looked expensive compared to the market and most other stocks 10 years ago.

Yet Visa’s stock is up by almost 500% over the last decade anyway. You tend to get what you pay for. And if you want a world-class business, you have to be willing to accept the valuation befitting of a world-class business. The P/E ratio of 32.1 is on the high end of just about everything I track. But Visa’s five-year average P/E ratio is 36.7.

So, relative to itself, Visa is actually available at a discount right now. I wouldn’t say it’s cheap. But it does look reasonable, relative to where it’s historically been. If you don’t yet own a slice of this dividend growth monster, consider changing that.

— Jason Fieber

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