It’s hard to think of anything better than dividends.

After all, dividends are a completely passive form of income. We’re talking about getting paid for doing absolutely nothing.

Sure, you have to continue to hold shares you already bought. But this is really a do-something-once-and-get-paid-forever type of thing.

So what’s better than dividends? Bigger dividends, of course. Because if you want to live off of dividends, you also want to make sure those dividends can keep up with, or even exceed, the inflation rate.

Inflation will eat away at your purchasing power, if your income isn’t growing. And this is exactly where dividend raises come in. Because if there’s one thing better than a pay raise, it’s a pay raise for doing nothing at all.

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 cover is the one that came in from Discover Financial Services (DFS).

Discover Financial just increased its dividend by 16.7%. Wow. Isn’t that amazing? Getting an almost-17% passive pay raise on what’s already passive income. It’s passivity on top of passivity. I don’t know how you don’t love this stuff. Plus, 16.7% blows away the inflation rate. That’s a big increase in purchasing power right there.

This is 13th consecutive year of dividend increases for the financial services company.

Not the longest track record out there, but Discover makes up for it in terms of growth. The 10-year DGR is 19.1%. And with this most recent dividend raise coming in at nearly 17%, there’s clearly no serious slowdown. Plus, the stock even yields a very respectable 2.7%. That’s 50 basis points higher than its own five-year average. And the payout ratio is only 18.8%, which is ridiculously low. I can’t find anything to complain about here.

You know what else I can’t complain about? The valuation.

The P/E ratio is sitting at only 7. Its own five-year average is 10.6. And what’s great about this is, the company recently announced a $2.7 billion buyback program – that’s 10% of the entire market cap! So Discover is buying back its own shares hand over fist at these low levels. I like that. The current P/B ratio of 2 is also decently off of its own five-year average of 2.3. If you haven’t yet discovered Discover, now might be a good time to change that.

The second dividend increase we have to go over is the one that came courtesy of Johnson & Johnson (JNJ).

Johnson & Johnson just increased its dividend by 5.3%. Okay. Not the biggest dividend raise on today’s list. Not by a long shot. But that’s not what Johnson & Johnson is good for. What Johnson & Johnson is good for is incredible reliability.

The healthcare conglomerate has now increased its dividend for 61 consecutive years.

That’s one of the longest and most impressive dividend growth track records in existence. Few companies have been able to manage something like it. It puts Johnson & Johnson in rarefied air. The 10-year DGR of 6.4% doesn’t stand out.

Nor does the 2.9% yield. And the 44.7% payout ratio, based on FY 2023 guidance for adjusted EPS at the midpoint, is healthy but not exceptional. What’s really great about Johnson & Johnson is the combination of it all. It’s the sum adding up to more than the individual parts, in my view. It’s a case where 1+ 1 = 3.

Investing in Johnson & Johnson is almost never a bad idea.

And now would be no different. Sure, there are some talc liabilities weighing on the business and stock. But this Dividend Aristocrat has been in business for nearly 140 years. It’s not the fastest-growing business out there. But it is one of the oldest, biggest, and most consistent of them all. Based on that aforementioned guidance, the forward P/E ratio is 15.4.

That’s very low for a business of this quality.

I mean, Johnson & Johnson has a better credit rating from S&P than the US government – a government that can literally print money. This most recent dividend raise confirms what’s already common knowledge: Johnson & Johnson is royalty among dividend growth stocks. A Dividend King.

The third dividend increase we should talk about is the one that was announced by Nasdaq (NDAQ).

Nasdaq just increased its dividend by 10%. Gotta love a double-digit dividend raise. Being a dividend growth investor is as easy as waking up and finding out that shares you bought a while ago are now going to pay you even bigger dividends than they were before. Tough life. But someone’s gotta do it.

This marks the 12th consecutive year of dividend increases for the financial services corporation.

And what a start Nasdaq is off to. As with Discover, it’s been blazing. The 10-year DGR is 19.6%. Just astounding. Now, you do give up some yield on this one – it’s only 1.6%. But with double-digit growth, the yield isn’t as much of a consideration.

If you can let that compounding do its magic over time, those dividend raises will add up and create a large dividend down the road. With a payout ratio of only 38.9%, I suspect there’s plenty of dividend compounding yet ahead.

This one’s 20% off of its recent high, and it looks very buyable right now.

The P/E ratio of 24 might look rich… if you’re comparing it to slower-growing businesses that don’t have this level of quality. But if you’re comparing apples to apples – as in this stock’s own five-year average P/E ratio of 26.3 – it’s not rich at all.

Look, you tend to get what you pay for in life. And this is a terrific business with high margins. It owns the namesake Nasdaq stock exchange, which is a money machine. Exchanges run miniature monopolies. If you want to own a slice of the Nasdaq, buying this stock gets you just that.

The fourth dividend increase I have to bring up is the one that came through from Paychex (PAYX).

Paychex just increased its dividend by 12.7%. Another great business. Another double-digit dividend raise. And all shareholders had to do was not sell their shares. Such an easy, high-paying game. You almost can’t lose at it.

The payroll and HR solutions company has now increased its dividend for 13 consecutive years.

And here we go with another relatively young track record off to a fantastic start. The 10-year DGR is 8.9%, but we can clearly see a nice acceleration in dividend growth. This year’s 12.7% dividend raise follows last year’s 19.7% dividend raise. Now, I don’t expect that to persist. And I think it will settle into a high-single-digit rate. But it’s great while it lasts.

Also great is the yield, at 3.2%. It’s not often at all that you see that kind of yield with this kind of dividend growth rate. Indeed, the five-year average yield for Paychex is 2.7%. The one issue here is the payout ratio, which is 85.8%. That’s high, and I am surprised to see such a large dividend raise in the face of the payout ratio. But, like I said, I’d expect some moderation in dividend growth from here.

This stock looks at least modestly undervalued.

Every basic valuation metric I look at is lower than its respective recent historical average. Take the P/E ratio, for example. At 26.5, that’s quite a bit below its own five-year average of 29.7. Now, this is a case where I think the average is bit much.

An earnings multiple of almost 30 is a bit much. But below 27? I think that’s quite reasonable. Keep in mind, Paychex is guiding for adjusted EPS growth in the range of 13% to 14% for this fiscal year. While the dividend growth may have to slow, the business isn’t slowing at all. Take a look at this one.

The fifth dividend increase we should have a quick discussion about is the one that was announced by Parker-Hannifin (PH).

Parker-Hannifin just increased its dividend by 11.3%. Yet another double-digit “pay raise” for shareholders who simply sat on their hands and abstained from selling shares. Being a dividend growth investor is the easiest, and best, job in the world.

The motion and control technologies company has now increased its dividend for 67 consecutive years.

Wow. Just imagine doing anything for 67 years in a row. Now imagine doing more of that thing for 67 years in a row. It’s incredible. The 10-year DGR is 12%, which is pretty close to where this most recent dividend raise came in at.

Just more evidence of incredible consistency from Parker-Hannifin. The yield is only 1.8%, but that’s not a surprise. I’d be surprised to see a really high yield here. And the payout ratio is only 30.4%, based on FY 2023 guidance for adjusted EPS at the midpoint. This is a very healthy dividend.

It’s a healthy dividend from a healthy business. And that’s why the valuation is healthy.

Pretty much every multiple is above its respective recent historical average. The cash flow multiple of 17, for instance, is quite a bit higher than its own five-year average of 14.5. You see a similar disconnect with the sales multiple. On the other hand, using that aforementioned adjusted EPS guidance, the forward P/E ratio is only 16.8.

That’s not unreasonable at all for a business of Parker-Hannifin’s quality. In my view, one has to stretch a bit for Parker-Hannifin right now. And when comparing it to all other available opportunities, it’s tough to stretch. But this is definitely a name to have on the radar. Any pullback should be welcomed with open arms, and maybe even some capital.

The sixth dividend increase that deserves coverage today is the one that came from Travelers Companies (TRV).

Travelers just increased its dividend by 7.5%. Not the biggest dividend raise among those being featured today, but it’s still quite solid. I mean, we have to remember that this is more money – for doing nothing.

This is the 19th consecutive year in which the insurance company has increased its dividend.

If anyone was shocked by the size of this dividend raise, you’re not paying attention. I say that because the 10-year DGR is 7.4%. Travelers came in almost right on the nose with this year’s dividend raise.

When your dividend income is this consistent, and when the growth of that dividend income is this consistent, that makes an inconsistent world much easier to manage. And with a payout ratio of 34%, I foresee much more consistency ahead from Travelers. Plus, the stock’s 2.2% yield is very decent.

Also decent is the valuation. And what I mean by that is, the valuation looks neither super low nor super high. It looks fair and decent. We last analyzed and valued Travelers last year, and the fair value estimate came out to just over $178/share.

But the dividend is up in the interim, and that makes the equity that much more valuable and appealing. The stock’s pricing of about $182 is arguably right where it should be. I don’t see a huge bargain here. But Travelers is running a great insurance operation. And if your portfolio is in need of exposure to P&C insurance, Travelers is a compelling option for the long term.

— Jason Fieber

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