Why is dividend growth investing one of the best long-term investment strategies in the world? Well, it’s quite simple.
High-quality dividend growth stocks represent equity in businesses that are so great, their revenues, profits, and dividends are all consistently growing. And when you invest in great businesses by buying their great shares, you tend to get great results over time.
But when these stocks are on sale – when they’re undervalued – that’s when they can be even greater. See, price and yield are inversely correlated. All else equal, lower prices result in higher yields.
This means more dividend income on the same invested dollar, making financial independence an easier and faster target to reach.
That perspective 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.
With all of that out of the way, it’s a big market, and some ideas are better than others. Focusing on the very best long-term ideas right now is what this article is all about. Today, I want to tell you my top 5 dividend growth stocks for June 2024.
Ready? Let’s dig in
My first dividend growth stock for June 2024 is American Tower (AMT). American Tower is an infrastructure real estate investment trust. This is one of the largest REITs in the world. American Tower owns, operates, and develops broadcast communications infrastructure across the world. These are those towers you see almost everywhere. What’s great about it is, this infrastructure is only becoming more important as time goes on.
Think data consumption, 5G, IoT, and even AI. There is no future in which humanity is consuming less data. There is no future in which humanity is less reliant on technology. To the contrary, that consumption and reliance only continues to grow, which plays right into the hands of American Tower and its ability to bring low-latency, high-speed data access to market. That’s why the REIT has provided an 11.7% CAGR in revenue and 9% CAGR in AFFO/share over the last decade.
American Tower is a tower of dividend growth. This REIT has increased its dividend for 14 consecutive years, with a 10-year DGR of 19.1%. You just do not see a near-20% growth rate in the REIT space very often. Almost never, actually.
Now, recent growth has slowed as the REIT has matured and deleveraging priorities have entered the picture. Still, the stock offers a nice 3.5% yield to pay you while you wait for debt to come down and dividend growth to pick back up. And the payout ratio is a reasonable 62.2%, based on midpoint guidance for FY 2024 adjusted FFO/share. This stock is down about 40% from all-time highs and looks pretty attractive in terms of its valuation.
The forward P/AFFO ratio is sitting at just over 17. That is somewhat analogous to a P/E ratio on a normal stock, so we can see just how lowly the market is valuing this one. The P/CF ratio is right around 15, but its own five-year average is nearly 22. That is a huge disconnect. I recently put together a full analysis and valuation piece on American Tower, estimating fair value for the business at just over $206/share. The stock’s currently priced at $186. Decent upside on a great REIT.
My second dividend growth stock for June 2024 is Prologis (PLD). Prologis is a global logistics real estate investment trust. Another REIT? Why not?
These stocks have been absolutely hammered over the last year or so, even while the actual businesses have held up well. But since REITs are leveraged income vehicles, it’s not a surprise to see them do so poorly in a rising-rate environment. That’s how it goes. However, with rates flat and even, perhaps, nearing a downswing, and with REIT valuations at depressed levels, there’s a lot to like here.
Speaking on Prologis specifically, this is is a REIT that develops, acquires, and operates industrial and logistics facilities all over the world. It’s a great spot to be in. Industrial properties, such as warehouses, are critical to the global supply chain, yet the costs of these properties represent a small portion of the total supply chain costs. This combination of criticality and cost helps to explain why Prologis has delivered an 18% CAGR in revenue and 12.9% CAGR in Core FFO/share over the last 10 years.
Prologis has been, and should remain, one of the best dividend growers out there. This REIT has increased its dividend for 11 consecutive years. The 10-year DGR is 12%. That’s a strong dividend growth rate, in general, but it’s especially strong for a REIT. And there’s no reason to expect it to stop, as Prologis keeps putting up the numbers.
The stock also yields 3.7%. So that’s a REIT-like yield, even though you get the growth that far outpaces most other REITs. Best of both worlds. The payout ratio is 70.8%, based on midpoint guidance for this year’s Core FFO/share. Elevated, but not overly concerning. This stock used to be a darling that could do no wrong. But things change fast.
Yes, this stock seemingly defied gravity for years. Just relentlessly up and to the right. But it’s now down almost 40% from all-time highs, and that’s precisely where the long-term investment opportunity could be. This stock used to be consistently expensive. Now?
The forward P/FFO ratio is sitting at right about 20, based on midpoint guidance for FY 2024 Core FFO/share. That is not super demanding at all. The P/CF ratio, which is below 20, compares very favorably to its own five-year average of approximately 26. I recently went through this business and put together a full analysis and valuation piece, estimating intrinsic value for the REIT at just over $128/share. The stock’s current pricing of $105 leaves a lot of room for upside here on one of the world’s best REITs.
My third dividend growth stock for June 2024 is Philip Morris International (PM). Philip Morris International is the world’s largest publicly traded tobacco company. To be honest, I’m not a fan of most of the tobacco companies as long-term investments. Smoking is in secular decline, and so are cigarettes. So we’re talking about “melting ice cubes” here.
If it were 50 years ago, I’d be excited about this industry. In 2024? Not so much. However, PMI is the exception. And that’s because management made smart investments in two key areas of the business. It’s a powerful one-two punch. On one hand, PMI has IQOS heated tobacco units which use a healthier heat-not-burn technology.
On the other hand, PMI has the ZYN nicotine pouches, which offer a smoke-free delivery of nicotine. Both of these products are growing like crazy and more than offsetting declining cigarette shipment volumes. In fact, nearly half of PMI’s revenue come from smoke-free products. Incredible. Revenue and EPS are both essentially flat over the last decade, which isn’t an uncommon feature for companies in this industry, but there’s evidence that PMI is turning the corner.
PMI’s dividend growth could be in for a big acceleration. Meanwhile, you get a very healthy starting yield here. With IQOS and ZYN both firing on all cylinders and showing intense growth, PMI has gone from an existential crisis to excitement. And that bodes well for dividend growth, which to date, has been modest.
The company has increased its dividend for 16 consecutive years, which dates back to the company’s initial spin-off from former parent company Altria Group Inc – stock ticker MO – in 2008. The 10-year DGR is only 3.9%. Pretty meh. However, the stock yields 5.2%, so there’s definitely some income to look forward to while IQOS and ZYN take off and bring PMI with them. The payout ratio is 83.2%. High, sure. But not uncommonly so for PMI, which has always operated with a higher payout ratio.
I think there’s some decent value here on an income play with new, exciting growth engines firing up. Is this the cheapest stock in the market? No. It’s not even the cheapest in its space. But it’s certainly not been caught up in the AI hysteria, either. And relative to most everything else out there, it’s very inexpensive.
Look, to that point, and to be fair, the stock has gone almost nowhere for eight years. And that’s been mostly warranted. But when you see the massive growth that IQOS and ZYN are bringing to the table, this is arguably the most exciting long-term investment idea in the entire industry. The rest of the competitors appear to be slowly dying. I recently finished up a full analysis and valuation piece on PMI, showing why the stock looks slightly undervalued here at $100, so make sure to check that out.
My fourth dividend growth stock for June 2024 is Restaurant Brands International (QSR). Restaurant Brands International is a Canadian-American global quick-service restaurant company.We have a business model here that is super easy to understand. We’re talking about QSRs that serve burgers, coffee, snacks, and sandwiches across four major brands: Tim Hortons, Burger King, Popeyes Louisiana Kitchen, and Firehouse Subs.
I wouldn’t necessarily call any of these brands leaders in their respective spaces, but they’re all very strongly positioned in the marketplace. People gotta eat. And the products from these brands tend to provide solid value, especially in today’s inflated economy. And this company’s growth might be flying under the radar. RBI put together a 7.3% CAGR in revenue and 28.7% CAGR in EPS over the last nine years.
Dividend growth has been modest out of the gate, but I think it can pick up. Although this company’s individual brands have long histories, RBI was formed as a group in 2014 after a merger between Tim Hortons and Burger King. And so the 10 consecutive years of dividend increases is a track record that’s as long as it possibly could be.
RBI has been paying a growing dividend right out of the gate, which shows real commitment to shareholders. Unfortunately, the rate of growth has been unimpressive. The five-year DGR is only 4%. And while the 3.4% yield does make a low-single-digit dividend growth rate easier to swallow, it’s still not great. However, with a turnaround effort showing encouraging signs of growth acceleration, the dividend growth potential on a go-forward basis looks really good. And a payout ratio of 59.9% reveals a well-covered dividend.
Is it finally time to buy this stock?
I’ve actually not been a fan of RBI since the IPO. It’s struggled with performance – both in terms of the business and stock. And the balance sheet is super leveraged. However, I’m starting to warm up to this one for the first time ever. The company recently brought J. Patrick Doyle on as Executive Chairman.
Doyle is one of the best QSR operators out there. Doyle bought millions of dollars’ worth of company stock with his own money and is masterminding an epic turnaround plan, starting with the “Reclaim the Flame” initiative to revive the Burger King brand. I recently put together a lengthy deep dive on the business, and the business appears to be potentially worth about $83/share. The stock’s current pricing, which is below $70, looks quite attractive to me. It might be time to follow Doyle on this one and pick up some shares.
Call To Action: This six-figure portfolio, which I call the FIRE Fund, generates enough passive dividend income for me to live off of. It allowed me to retire in my early 30s. I’ve made my portfolio entirely accessible over at Patreon – and I post alerts there whenever I buy or sell a stock. I put my money where my mouth is and am often invested in the same high-quality dividend growth stocks that I make videos on.
Over the years, I’ve heard from thousands of investors who have been profiting from many of the same exact stocks I own. So if this sounds like something you think you could benefit from as well, check out this link to see my portfolio and start getting my buy and sell alerts.
I’ll see you next time.
— Jason Fieber
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