Passive income is awesome. I mean, just the idea of making money while you sleep – *chef’s kiss*. But there’s a big caveat here.

As awesome as passive income is, inflation is something that can eat it alive over time. If your passive income is static every year, inflation will slowly eat away at your purchasing power. That’s why you need to make sure your passive income is growing at least as fast as, if not faster than, inflation.

Enter dividend growth investing. Investing in high-quality dividend growth stocks solves this problem.

That’s due to the growth in dividend growth investing.It’s the “G” in DGI.

Many blue-chip companies out there aren’t just paying dividends. They’re paying growing dividends… dividends that grow year in and year out, like clockwork. And shareholders who are invested in these world-class businesses are seeing their totally passive dividend income rise all by itself.

Dividends are about as passive as income can possibly get. And dividend increases are about as easy as pay raises can possibly get.

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 bring to your attention is the one that was announced by Automatic Data Processing (ADP).

Automatic Data Processing just increased its dividend by 20%. Okay. Let’s go through the levels here. Passive income? Awesome. An automatic increase in that passive income for doing nothing other than simply holding the shares? Even better. A double-digit automatic increase in that passive income? Best.

Not only did I have to work really hard to get a pay raise back when I still had a day job, but pay raises – when I eventually got them – certainly didn’t come in at 20% a pop. Being a dividend growth investor sure beats a day job, guys.

This marks the 47th consecutive year of dividend increases for the human resources management software company. Alright. Yet another way in which dividend growth investing is fantastic – ADP shareholders have been collecting these free pay raises every single year for nearly five straight decades.

How can you not love something like this? The company’s 10-year DGR is 10.2%, so double-digit dividend increases are nothing new here. The stock only yields 1.9%, so you do give up a bit of yield in order to access that kind of dividend growth. The payout ratio of 69.3% is a bit elevated, but ADP’s most recent guidance for FY 2023 calls for adjusted YOY EPS growth of 16%. So we have no issues with the dividend or the growth of it.

Quality comes at a price, and that definitely goes for ADP. Now, I’m always willing to pay up for a great business like ADP.

However, the current valuation metrics are looking a bit hot to me. For example, the P/E ratio of 37.4 is not only high in absolute terms but also relative to its own five-year average of 32.9.

So this is the kind of name that usually commands a healthy premium. But that premium is healthier than normal. This is the rare stock that’s actually up on the year. And not just up YTD but up by 10% YTD.

Meantime, the S&P 500 is down by 15% this year. That’s an impressive spread for ADP, but waiting for a more reasonable valuation before jumping in might not be a bad idea. For current shareholders, however, enjoy that 20% bump in pay.

The next dividend increase we have to talk about is the one that came from C.H. Robinson Worldwide (CHRW).

C.H. Robinson just increased its dividend by 10.9%. This company flies a bit under the radar. But what you have here is a high-quality, comprehensive logistics business providing everything from brokerage services to freight transportation. Its quality is partially evidenced by this double-digit dividend increase – a dividend increase that is part of a long line of dividend increases.

This is the 25th consecutive year in which the logistics company has increased its dividend.  What’s really special here is that this is the 25th consecutive year of dividend increases, which should now qualify C.H. Robinson to join the elite group of Dividend Aristocrats.

You must have at least 25 consecutive years of dividend increases, among other things, to be in that limited club. The company’s 10-year DGR is 7.6%, so we’ve got a nice, outsized dividend raise here. With inflation running so high, it’s nice to know that this company has its shareholders’ backs.

Also, the stock yields 2.5%. So this is not a bad combination of yield and dividend growth. The payout ratio, at 29.6%, is super low, which should give shareholders a lot of confidence in the sustainability of the dividend.

This stock actually looks pretty cheap right now, but it all depends on what unfolds in 2023. The market is a forward-looking mechanism. Like Wayne Gretzky said, you want to skate to where the puck is gonna be, not where it’s been.

Looking at things now, it looks quite undervalued. The P/E ratio is 11.7, which is well off of its own five-year average of 20. If that’s all there is, it’s cheap. But there is more to it than that. Specifically, the US Federal Reserve is actively trying to slow the US economy. And there knock-on effects to a slowdown, which will undoubtedly affect a logistics player like C.H. Robinson.

The market is already pricing in a pretty big slowdown, though, and this wouldn’t be C.H. Robinson’s first rodeo. That 24-year streak of dividend raises includes plenty of prior slowdowns, so I do very much like this business as a long-term investment. Take a look at it.

The third dividend increase I have to cover is the one that came in from Enbridge (ENB).

Enbridge just increased its dividend by 3.2%. Not a massive dividend increase by Enbridge. But this is right in the wheelhouse of what shareholders should have expected. The thing with Enbridge, though, is that you just don’t need huge dividend increases from the business to make sense of the investment. And I’ll tell you why. First, let’s just celebrate how reliable Enbridge has been as a serial dividend raiser.

The multinational oil and gas pipeline company has now increased its dividend for 27 consecutive years. You’ve just gotta love it. Almost three straight decades of ever-higher dividend payments from this pipeline company. You could say they’re just as good at pipelining growing dividends as they are at pipelining growing energy supplies.

Now, this 3.2% dividend increase is pretty much right in line with recent behavior, despite the 10-year DGR of 9.4%. However, the stock yields 6.5%. With that kind of big yield, one just doesn’t need a lot of dividend growth in order to rationalize the investment from the standpoint of the total package.

The high yield does make it particularly suitable for older, income-oriented dividend growth investors. Also, Enbridge recently increased its FY 2023 distributable cash flow guidance to between $5.25-$5.65/share Canadian, easily covering the dividend that adds up to $3.55/share Canadian per year.

Enbridge strikes me as a great idea right here, right now for long-term dividend growth investors. It’s been about a year since we last covered Enbridge, so we’ll have to update that. But in our last full analysis and valuation video on this business, which went live late last year, our estimate of fair value came out to nearly $48/share.

Based on that aforementioned guidance, at the midpoint, the forward multiple of cash flow is only 7.4. Enbridge might not be blowing it out of the water with growth, but a reliable 6.5% yield growing consistently at a low-singe-digit rate, available at a low valuation, looks pretty good to me. Don’t forget about Enbridge.

Next up, let’s have a quick discussion about the dividend increase that was announced by Nike (NKE).

Nike just increased its dividend by 11.5%. Nike is practically a lock for double-digit dividend increases every fall. You can almost set your watch by it. Playing on their trademarked slogan, when it comes to generously rewarding shareholders every year with big dividend increases, Nike is prone to “just do it”.

The global athletic footwear and apparel company has now increased its dividend for 21 consecutive years. Nike’s 10-year DGR is 13%.

Also, its five-year and three-year dividend growth rates, respectively, are both in the double digits. And then you get this 11.5% dividend increase this year. Nike is so reliable with this. On the other hand, Nike isn’t, nor has it ever been, a high yielder. The stock yields just 1.2%. And that kind of low yield isn’t new – the stock’s five-year average yield is 1%. But with the payout ratio at 38.6%, I suspect investors who are counting on those double-digit dividend increases will get what they’re looking for over the coming years.

With the stock down nearly 40% from its 52-week high, I think the valuation here has become quite reasonable. Look, Nike’s a terrific business. We’re talking about one of the best and most recognized brands on the planet. A terrific business deserves a terrific valuation.

Now, I’d argue that shares were too expensive when they were going for over $170/each late last year. Down here, below $110/each, shares look reasonably valued. Not cheap. But reasonable. The P/E ratio of 31.1 is on the high end of what I’m usually willing to accept, but not egregious.

The sales multiple of 3.7 is lower than its own five-year average of 4.2. And the yield, as I just noted earlier, is a bit higher than its own recent historical average. I think the stock is buyable here, but I’d love to see it back below $100.

The fifth dividend increase I have to bring to your attention is the one that came in from Service Corporation International (SCI).

Service Corporation just increased its dividend by 8%.This is a great example of what makes dividend growth investing so powerful. Annual inflation in the US is running at somewhere around 8%. And if your income isn’t growing, you’re falling behind. But seeing your passive dividend income also grow by 8% means you’re able to protect your purchasing power and prevent yourself from getting tackled from behind. Love it.

The provider of funeral, cremation and cemetery services has now increased its dividend for 12 consecutive years. The company’s 10-year DGR is 16.7%, so this most recent dividend increase, while sizable, was a bit lower than what, perhaps, shareholders have become accustomed to.

Still, an 8% pay raise for doing nothing other than simply holding your shares? Hard to complain. The stock’s yield of 1.6% is right in line with its own five-year average, so we’re dead on the mark here. A 26% payout ratio, which is very low, indicates to me that Service Corporation will continue to consistently service their shareholders with large dividend increases.

I really, really like Service Corporation. But I’d like it even more at a lower valuation. Why do I like it so much? It comes down to the business model.

When you’re in the funeral, cremation, and cemetery business, you essentially have an unlimited runway for demand. Unfortunately, everything that’s born is meant to die. And the end of life leads you right to a company like this.

That said, most basic valuation metrics are running slightly hot. The P/E ratio is basically right in line with its own five-year average, but the sales multiple and cash flow multiple are both about 10% higher than their respective recent historical averages. I think we’re at a fair valuation here. Maybe slightly overvalued.

Now, you could do worse than pay a fair price for a wonderful business. But I’d like this name even more at a lower valuation. Either way, make sure it’s on your radar, if it isn’t already, especially after this latest dividend increase.

Last but not least, let’s have a quick discussion about the dividend increase that was announced by Snap-on (SNA).

Snap-on just increased its dividend by 14.1%. How about snapping on that kind of dividend increase to your portfolio? This business doesn’t get a lot of press, but it’s turning into a real gem for long-term dividend growth investors. This most recent dividend raise just adds to its budding legacy. 

This marks the 13th consecutive year of dividend increases for the tool and equipment company. Love the dividend metrics from Snap-on. The 10-year DGR of 15.4% pairs compellingly well with the stock’s current yield of 2.7%. If only every stock I ever bought offered that much yield and that much dividend growth, simultaneously. And with the payout ratio sitting at just 39.3%, even after yet another double-digit dividend increase, Snap-on has the capacity for plenty more large dividend raises in the years ahead.

This stock has defied gravity and the market the year – actually up 12% in 2022. If you get a pullback, be prepared to jump on it. Legendary investor Peter Lynch always recommended to “invest in what you know”. Snap-on is, for me, the epitome of that advice.

I used to work in the auto industry as a service advisor for a car dealership. Well, the Snap-on trucks would come around often, showing our techs the latest gadgets they needed to properly repair vehicles. Other trucks would come around, but Snap-on trucks would always get most of the attention. That tells me a lot right there.

Most basic valuation metrics for this business are either at or slightly ahead of their respective recent historical averages. I wouldn’t argue with buying the stock right here, right now. But a pullback would make it that much more attractive. Do consider snapping up shares of Snap-on when you get the chance.

— Jason Fieber

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