3 Dividend Growth Stocks to Buy Now

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3 dividend growth stocks

Three dividend growth stocks to buy now have a history of long-term rising payouts and producing superior total returns compared to their non-dividend-paying peers for extended time horizons.

Investors seeking dividend growth stocks to generate steady income for their portfolio should consider equities with a history of reliable returns that offer potential asset appreciation. Income investors may be tempted to fill their portfolios with only high-yield dividend stocks in an effort to maximize their returns but doing so subjects them to a disproportionate amount of risk. 

Income investors often fail to look past the main performance metrics — namely dividend yield — in which a seemingly high payout rate may be due to a sudden drop in share price and be indicative of deeper financial problems.


Rather than subject themselves to this risk, savvy investors can stabilize their portfolios by taking positions in reliable dividend growth stocks. These companies offer consistent dividend payments but also usually maintain growing share prices, allowing investors to collect returns from receiving both dividend payments and value appreciation.

The three dividend growth stocks to buy have met a number of additional criteria. Each of the three stocks has outstanding growth, with their 1-year returns higher than 20%. Each company has increased its dividend annually for more than 15 consecutive years, making them profitable and stable options to hold for a long time.


3 Dividend Growth Stocks to Buy Now: #3

Microsoft (NASDAQ:MSFT)

Microsoft is an unquestioned software giant most famous for its development of the Windows operating system and Office suite. The company now offers services in three primary segments: productivity and business processes, intelligence cloud and personal computing. Microsoft was founded in 1975 and now employs more than 163,000 people worldwide with a market capitalization of more than $1.5 trillion.

dividend growth stocks


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The company increased its dividend for the 16th consecutive year on November 18, 2020. It now pays $0.56 per quarter, with an annual dividend distribution for 2020 at $2.09. MSFT’s trailing 12-month yield is 1.0%. Although this dividend yield may not be an impressive return at face value, the strength of MSFT can be seen in its unfaltering growth.

In addition to it being a Dividend Achiever — a company that has grown its dividend more than 10 years in a row — the company has increased its dividend by 9.8% this year. It has an average annual dividend growth rate of 10.1% over the last three years and 15.1% over the last 10 years. The rest of the S&P 500 has averaged -3.1% in the trailing 12 months, and 2.8% and 8.4% in the last three and 10 years, respectively.

While each of the company’s segments has shown growth, the core of MSFT’s value hike is its intelligence cloud, accounting for more than 35% of the company’s total revenue. Azure, the web services element of MSFT and its segment’s crown jewel, is growing rapidly and expected to keep this trajectory. Azure’s revenue has grown 48% year over year, faster than its rivals Google Cloud (NYSE:GOOG) and Amazon AWS (NYSE:AMZN).

With MSFT’s web services outperforming the platforms of giants Amazon and Google and much of its revenue coming from Azure, the stock is likely going to continue its impressive growth. MSFT has reported returns of 44.1% in the last year alone, and is 330.9% more valuable than it was just five years ago. It trades at 26 times earnings per share — a premium not that significant when compared to the rest of the market — and is likely undervalued.


3 Dividend Growth Stocks to Buy Now: #2

Honeywell International (NYSE:HON)

Honeywell International is considered by some investors as the gold standard of industrial companies, operating in four primary business segments: building technology, aerospace, performance materials and productivity and safety solutions. The company is more recently expanding into software but its history in industrial machinery is long. HON was founded in 1885 to produce climate control technology, including a very early model of the thermostat, and it remains a dominant force in that market today.

dividend growth stocks

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HON has a dividend yield of 1.8%, greater than both its industry average of 1.2% and the S&P 500’s 1.5%. The company’s stock price has increased every year for the last 16 years with an average growth rate of 11.9% annually in the last 10 years. HON’s shares have grown 3.3% during the COVID-19 pandemic. The average company in its industry cut its dividend 34.2%.

The company pays its dividend quarterly and recently increased its dividend to $0.93 per share, giving HON an annual dividend of $3.63 for the trailing 12 months.

HON’s consistent dividend payment is only one reason investors should consider it one of the best three dividend growth stocks. The company has strong fundamentals, reporting $15 billion in cash and securities and generating $2.1 billion of free cash flow in the first half of the year alone. Analysts expect a sharp increase in sales and HON to report earnings per share around $2.00 in the fourth quarter, nearly twice the amount given in Q3.

The company has been hurt by the economic chaos caused by COVID-19, albeit not frighteningly so. Despite a temporary decrease in sales (reporting roughly 88% of Q1 sales), HON has stayed stable and even managed to grow it has a 20.5% return in the last 12 months and is expected to increase further as government lockdown regulations continue to lighten.


3 Dividend Growth Stocks to Buy Now: #1

Abbott Laboratories (NYSE:ABT)

Abbott Laboratories is a medical devices company founded in 1888 that produces pediatric nutritional products, diagnostic equipment and pharmaceuticals. While much of its business distributes pacemakers, catheters, coronary stents and similar products, ABT has recently put its focus on the mass production and distribution of COVID-19 testing kits.

dividend growth stocks

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The company has a dividend yield of 1.3% and is one of the most stable, consistent dividend payers on the market. Since 1924, ABT has paid 387 consecutive quarterly dividends and has increased its dividend payment every year for the last 48 years, making it a member of the Dividend Aristocrats — S&P 500 companies that have a record of boosting their annual dividend distribution amount for at least the last 25 consecutive years — and soon-to-be a member of the Dividend Kings, a prestigious group of companies that have increased their dividends for at least 50 consecutive years.

ABT has grown its dividend especially fast in recent years, making it one of the best three dividend growth stocks. The company has averaged a 10.8% annual dividend growth rate over the last three years, considerably higher than the industry average of 3.0%. Coupled with its high 73.5% payout ratio, shareholders prosper as they receive nearly three-quarters of ABT’s growing profits.

Alongside being a picture-perfect dividend payer, ABT is seeing growth in each of its four sectors with profit primarily driven by medical device sales. It doubled its earnings per share in the third quarter, reporting $0.69 and beating analyst expectations by $0.07 compared to ABT’s Q1 and Q2 earnings of $0.30 per share, the company is growing fast and poised to continue doing so. Analysts project another near-doubling of quarterly earnings at year’s end, with ABT hoping to achieve $1.35 EPS in the fourth quarter, totaling $2.64 per share this year.

ABT’s growing earnings is well reflected in its stock price, which has delivered a 29.5% return in the trailing 12 months and a 101.1% return in the last three years. While COVID-19 has crippled many companies, ABT has continued its upward trend and even improved its business practices, taking the mass production of testing kits as an opportunity to streamline the business. The company is a spectacular dividend growth stock for any income investor’s portfolio, combining both a long-standing history of dividend growth with financial success in the midst of economic uncertainty.


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Jonathan Wolfgram

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Jonathan Wolfgram
Jonathan Wolfgram is an investment analyst who writes website content at Eagle Financial Publications. He graduated from the University of Minnesota with Bachelor’s degrees in Finance and Philosophy. Jonathan writes for www.DividendInvestor.com and www.StockInvestor.com.
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