10 Dividend Growth Stocks to Buy

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In this article, we will be taking a look at the 10 dividend growth stocks to buy. To skip our detailed analysis of dividend investing, you can go directly to see 5 Dividend Growth Stocks to Buy.

It’s commonly believed that growth stocks don’t pay dividends and income investors who want a steady stream of income cannot enjoy stock price jumps of growth stocks. But this perception is wrong. One must consider the option of benefitting on multiple fronts – by investing in dividend growth stocks, for instance. While dividend stocks like Moody’s Corporation (NYSE: MCO), Altria Group, Inc. (NYSE: MO), The Coca-Cola Company (NYSE: KO), and AT&T Inc. (NYSE: T) can help investors rack up the money through boosted income, it is true growth stocks have their own merits too. And so, we will be looking at why it may be a good idea to consider investing in growth stocks that also just so happen to pay out dividends.

Dividend stocks, such as the dividend aristocrats which have raised their yields for at least 25 years in a row, have managed to perform incredibly well in the past 10 years, according to the S&P 500 Dividend Aristocrats Index fact sheet, which recorded their total annual returns to be 14.5%. This positive performance notwithstanding, let’s also look at how investors stand to benefit even more from dividend growth stocks. Wide-ranging research has suggested in the past that dividend growth stocks, like regular dividend stocks, tend to outperform the market. But oftentimes, these stocks may perform even better than typical dividend stocks.

One such research that makes and justifies the same claim as the one laid down above was conducted by Ned Davis and Hartford Funds. Through this research, it was revealed that dividend growth stocks, referred to as dividend growers and initiators, managed to deliver long-term total returns valued at 13.20% annually, between the studied time period of 1973 to 2020.

When compared to the performance of the S&P 500 in the same context, it was found that the latter’s long-term total returns stood at 12.57% annually. Thus, the case was made to prove the outperformance of dividend growth stocks, when compared to the market at large. Finally, and perhaps more interestingly for investors, it was also mentioned that investors that decided to invest mainly in dividend growers and initiators also managed to benefit more from higher returns, being able to turn a $100 figure into $11,346 between 1973 and 2020. The returns for regular dividend payers stood at $6,946, while those for the S&P 500 stood at $3,764, during the same time period.

Investing has become difficult by the day, even for the smart money. The entire hedge fund industry is feeling the reverberations of the changing financial landscape. Its reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 86 percentage points since March 2017. Between March 2017 and July 2021 our monthly newsletter’s stock picks returned 186.1%, vs. 100.1% for the SPY. Our stock picks outperformed the market by 86 percentage points (see the details here). That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.

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Without further ado, let’s take a look at the 10 dividend growth stocks to buy.

Our Methodology

We have selected growth stocks that pay dividends with yields of up to and over 8%. Insider Monkey tracks the data of about 873 hedge funds, and we have also used this data to pick dividend stocks that are highly popular among hedge funds today. For each stock we have mentioned its yield and the number of hedge funds holding a stake in it, ranking them from the lowest to the highest dividend yield. Finally, we have used analysts’ ratings to determine which stocks are favorably placed in analyst and investor circles, picking stocks with mostly positive ratings and strong fundamentals.

Dividend Growth Stocks to Buy

10. Microchip Technology Incorporated (NASDAQ: MCHP)

Number of Hedge Fund Holders: 50 Dividend Yield: 1.11%

Microchip Technology Incorporated (NASDAQ: MCHP) is an information technology company working to develop and sell semiconductor products for embedded control applications in the US, Europe, and Asia. The company ranks 10th on our list of dividend growth stocks to buy. It is based in Arizona, US.

This August, BMO Capital raised its price target on shares of Microchip Technology Incorporated (NASDAQ: MCHP) from $165 to $175. The firm also holds an Outperform rating on the stock.

In the fiscal first quarter of 2022, Microchip Technology Incorporated (NASDAQ: MCHP) had an EPS of $1.98, beating estimates by $0.07. The company’s revenue was $1.57 billion, up 19.83% year over year and beating estimates by $18.52 million.

By the end of the second quarter of 2021, 50 hedge funds out of the 873 tracked by Insider Monkey held stakes in Microchip Technology Incorporated (NASDAQ: MCHP) worth roughly $1.12 billion. This is compared to 42 hedge funds in the previous quarter with a total stake value of approximately $962 million.

9. Robert Half International Inc. (NYSE: RHI)

Number of Hedge Fund Holders: 23

Dividend Yield: 1.5%

Robert Half International Inc. (NYSE: RHI) is an industrials company that provides staffing and risk consulting services in North America, South America, Europe, Asia, and Australia. The company operates through its Temporary and Consulting Staffing, Permanent Placement Staffing, and Risk Consulting and Internal Audit Services segments, and ranks 9th on our list of dividend growth stocks to buy.

This July, analysts at BMO Capital raised the price target on shares of Robert Half International Inc. (NYSE: RHI) from $100 to $106, while reiterating an Outperform rating on the shares.

In the second quarter of 2021, Robert Half International Inc. (NYSE: RHI) had an EPS of $1.33, beating estimates by $0.29. The company’s revenue was $1.58 billion, up 42.61% year over year and beating estimates by $105.69 million.

By the end of the second quarter of 2021, 23 hedge funds out of the 873 tracked by Insider Monkey held stakes in Robert Half International Inc. (NYSE: RHI) worth roughly $281 million. This is compared to 27 hedge funds in the previous quarter with a total stake value of approximately $284 million.

8. Lowe’s Companies, Inc. (NYSE: LOW)

Number of Hedge Fund Holders: 63 Dividend Yield: 1.54%

Lowe’s Companies, Inc. (NYSE: LOW), a consumer discretionary corporation, operates in the US as a home improvement retailer. The company ranks 8th on our list of dividend growth stocks to buy and offers products in the areas of construction, maintenance, repair, and others.

This September, UBS reiterated a Buy rating on shares of Lowe’s Companies, Inc. (NYSE: LOW), alongside a price target of $250.

In the fiscal second quarter of 2022, Lowe’s Companies, Inc. (NYSE: LOW) had an EPS of $4.25, beating estimates by $0.24. The company’s revenue was $27.57 billion, up 0.98% year over year and beating estimates by $811.43 million.

By the end of the second quarter of 2021, 63 hedge funds out of the 873 tracked by Insider Monkey held stakes in Lowe’s Companies, Inc. (NYSE: LOW) worth roughly $4.9 billion. This is compared to 61 hedge funds in the previous quarter with a total stake value of approximately $5.2 billion.

Like Moody’s Corporation (NYSE: MCO), Altria Group, Inc. (NYSE: MO), The Coca-Cola Company (NYSE: KO), and AT&T Inc. (NYSE: T), Lowe’s Companies, Inc. (NYSE: LOW) is a notable stock pick today.

Pershing Square Holdings Ltd, an investment management firm, mentioned Lowe’s Companies, Inc. (NYSE: LOW) in its fourth-quarter 2020 investor letter. Here’s what they said:

“Lowe’s is a high-quality business with significant long-term earnings growth potential. We initiated our investment in the company in April 2018 largely because we believed that the hiring of a new high-caliber management team could dramatically improve the business and close the performance gap to its closest competitor, Home Depot. Marvin Ellison became CEO in July 2018, and immediately began working on a multi-year transformation plan to bolster Lowe’s retail fundamentals, reduce structural costs, expand distribution capabilities, and modernize systems and the company’s online capabilities.

In 2020, Lowe’s experienced unprecedented demand driven by consumers nesting at home, higher home asset utilization and a reallocation of discretionary spend. Lowe’s earlier decision to modernize the company’s online offering allowed it to meet consumers’ surging demand. Further, its commitment to improve the company’s retail fundamentals allowed Lowe’s to showcase its enhanced merchandising, greater in-stock-levels, and excellent customer service. In the fourth quarter, the company completed 95% of its store layout resets which include a more intuitive shopping experience complete with a more Pro-centric layout (by “Pro” we refer to the professional tradesmen that perform repair and maintenance, remodeling and construction services). The company is also rolling out a new Pro CRM tool, which should improve Lowe’s Pro market share.

Management remains focused on a myriad of operational initiatives designed to improve the customer shopping experience and the company’s long-term earnings power. In the near-to-medium-term, these initiatives include improving Lowe’s omnichannel capabilities including simplifying search and checkout features, launching three additional ecommerce fulfillment centers, enabling faster mobile order fulfillment, standing up dedicated store fulfillment teams, rolling out touchless Buy-Online-Pick-Up-In-Store lockers to all U.S. stores by April 2021, and reimagining scheduling and modes of delivery for certain large-format order deliveries (notably, appliances). These initiatives are examples of Lowe’s “Perpetual Productivity Improvement” program which is designed to improve market share and profit margins.

Lowe’s is making important strategic investments to position the business to continue to thrive. The company’s long-term outlook implies significant opportunity for continued earnings appreciation and margin expansion as it executes its multiyear business transformation.”

7. Automatic Data Processing, Inc. (NASDAQ: ADP)

Number of Hedge Fund Holders: 41 Dividend Yield: 1.84%

Automatic Data Processing, Inc. (NASDAQ: ADP) is an information technology company offering cloud-based human capital management solutions globally. The company ranks 7th on our list of dividend growth stocks to buy and operates through its Employer Services and Professional Employer Organization (PEO) segments.

As of this August, Mizuho analysts hold a Buy rating on shares of Automatic Data Processing, Inc. (NASDAQ: ADP), alongside a raised price target of $230, compared to the previous $220 price target.

In the fiscal fourth quarter of 2021, Automatic Data Processing, Inc. (NASDAQ: ADP) had an EPS of $1.20, beating estimates by $0.06. The company’s revenue was $3.74 billion, up 10.66% year over year and beating estimates by $61.56 million.

By the end of the second quarter of 2021, 41 hedge funds out of the 873 tracked by Insider Monkey held stakes in Automatic Data Processing, Inc. (NASDAQ: ADP) worth roughly $3.02 billion. This is compared to 42 hedge funds in the previous quarter with a total stake value of approximately $2.9 billion.

Like Moody’s Corporation (NYSE: MCO), Altria Group, Inc. (NYSE: MO), The Coca-Cola Company (NYSE: KO), and AT&T Inc. (NYSE: T), Automatic Data Processing, Inc. (NASDAQ: ADP) is a notable stock pick today.

6. Illinois Tool Works Inc. (NYSE: ITW)

Number of Hedge Fund Holders: 45 Dividend Yield: 2.3%

Illinois Tool Works Inc. (NYSE: ITW) is a manufacturer and seller of industrial products and equipment. The company ranks 6th on our list of dividend growth stocks to buy and operates through its Automotive OEM; Food Equipment; Test & Measurement and Electronics; Welding; Polymers & Fluids; Construction Products; and Specialty Products segments.

As of this August, analysts at Citigroup hold a Neutral rating on shares of Illinois Tool Works Inc. (NYSE: ITW). The firm also raised its price target on the stock from $252 to $256.

In the second quarter of 2021, Illinois Tool Works Inc. (NYSE: ITW) had an EPS of $2.10, beating estimates by $0.01. The company’s revenue was $3.68 billion, up 43.37% year over year and beating estimates by $114.36 million.

By the end of the second quarter of 2021, 45 hedge funds out of the 873 tracked by Insider Monkey held stakes in Illinois Tool Works Inc. (NYSE: ITW) worth roughly $657 million. This is compared to 33 hedge funds in the previous quarter with a total stake value of approximately $411 million.

Like Moody’s Corporation (NYSE: MCO), Altria Group, Inc. (NYSE: MO), The Coca-Cola Company (NYSE: KO), and AT&T Inc. (NYSE: T), Illinois Tool Works Inc. (NYSE: ITW) is a notable stock pick today.

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Disclosure: None. 10 Dividend Growth Stocks to Buy is originally published on Insider Monkey.