6 Best Dividend Growth Stocks to Buy Now

Since equities with long-term rising dividends appear to outperform in terms of total returns their non-dividend paying peers over extended time horizons, income investors seek the best dividend growth stocks to generate steady dividend income for their portfolio.

In addition to growing their dividends at high rates over the past decade, the equities on the list below also delivered robust asset appreciation to complement the rising dividends and deliver strong total returns over the past several years.

6 Best Dividend Growth Stocks to Buy Now: #6

Franklin Resources (NYSE:BEN)

Market Capitalization:             $14.2 billion

Dividend Yield:                        4.0%

Dividend Payout Ratio:           67.9%

First Dividend:                         1983

Consecutive Annual Hikes:    40 years

Franklin Resources, or Franklin Templeton Investments, is an investment service catering to both institutional and individual investors. At the end of 2020, the company was managing $1.42 trillion in assets, distributed largely between fixed-income (46%), equity (31%), multi-asset funds (10%) and alternatives (9%). More than 40% of its assets are invested in international operations, and approximately 30% of assets are sourced from investors living in other countries than the United States.

Since its purchase of Legg Mason in July 2020, the company has been doing remarkably well. Its one-year total returns came to 21.3%, the majority of which is from capital appreciation and share price growth. Its most recent dividend hike in the fourth quarter of 2020 brought the quarterly amount to $0.28, meaning the company pays an annual total of $1.12.

6 Best Dividend Growth Stocks to Buy Now: #5

Phillips 66 Partners LP (NYSE:PSXP)

Market Capitalization:             $5.7 billion

Dividend Yield:                        13.9%

Dividend Payout Ratio:           88.1%

First Dividend:                         2013

Consecutive Annual Hikes:    7 years

Phillips 66 Partners LP owns, operates, develops and acquires crude oil, refined petroleum products and natural gas liquids (NGL) pipelines and terminals, as well as other transportation and midstream assets. It currently pays a quarterly payout of $0.88, equivalent to an annual payout of $3.50.

The current 13.9% forward dividend yield is impressive but warrants a second look. While Phillips 66 is a strong dividend payer, its share price has suffered considerably in the trailing 12-month period, dropping 51.3% in value. This brought the company’s 3-year and 5-year returns into the negative as well, but it is due to that share price pullback that now is an excellent time to purchase this newly undervalued stock. With a target price nearing $36.00, the stock currently sits at $25.12, an estimated 44% below its fair market value.

6 Best Dividend Growth Stocks to Buy Now: #4

SunTrust Banks, Inc. (NYSE:STI)

Market Capitalization:             $31.14 billion

Dividend Yield:                        3.19%

Dividend Payout Ratio:           –

First Dividend:                         2011

Consecutive Annual Hikes:    0 years

The 2008 financial crisis devastated many equities and forced significant dividend cuts. In some cases, such as financial stocks, equities were forced to cut their dividend payouts more than 80%. However, those cuts created opportunities for investors to take advantage of the subsequent steep recovery.

The SunTrust Bank boosted its quarterly payout amount 12% from $0.50 last year to the most recent payout of $0.56 for the most recent distribution earlier this week. This new quarterly amount corresponds to a $2.24 annualized distribution and a 3.19% forward dividend yield, which is more than 30% above the bank’s 2.43% five-year yield average.

Furthermore, SunTrust Bank’s current yield also outperformed the 2.82% yield average of the entire Financial sector by nearly 16%, as well as the 1.98% average yield of the Money Center Banks industry segment by 65%. Even compared to the 3.15% yield average of the segment’s dividend-paying companies, SunTrust’s current yield is still 3.8% higher.

The bank all but eliminated its quarterly dividend distributions in the aftermath of the 2008 financial crisis with a 98.7% cut from $0.77 in the third quarter of 2008 to $0.01 in the first quarter of 2009.

However, the SunTrust Bank has advanced its annual dividend 56-fold since 2009 for an average annual growth rate of 56.4%. Even disregarding the tripling of the dividend payout in the first year of the current streak, the annual payout still advanced at an average annual rate of 44% over the last eight years.

6 Best Dividend Growth Stocks to Buy Now: #3

The PNC Financial Services Group (NYSE:PNC)

Market Capitalization:             $60.9 billion

Dividend Yield:                        3.2%

Dividend Payout Ratio:           27.5%

First Dividend:                         1865

Consecutive Annual Hikes:    10 years

The PNC Financial Services Group boosted its upcoming quarterly dividend payout more than 21% from $0.95 in 2019 to the new $1.15 dividend distribution. This new quarterly payout converts to a $4.60 annualized distribution, which yields 3.2%. The current yield is 41% above PNC’s own 2.31% dividend yield average over the last five years.

In addition to outperforming its own average, PNC also outperformed the 2.82% average yield of the entire Financial sector by 15.5%. However, compared to the 1.98% average yield of its peers in the Money Center Banks industry segment, PNC’s current yield is nearly 65% higher. Furthermore, PNC’s current yield also outperformed by 3.4% the 3.15% yield average of the segment’s only dividend-paying companies.

The company used robust annual hikes to recover its dividend payouts from an 85% cut in 2009. Despite a high growth rate, PNC needed seven years to raise its annual dividend payout to the same level as it was before the 2009 cut.

Following its only dividend cut in the past two decades, PNC enhanced annual dividend payout amount more than 11-fold from $0.10 in the second quarter of 2009, to the current annualized payout of $4.60. Over the past nine years, PNC’s annual dividend amount rose at an average growth rate of more than 31% each year.

6 Best Dividend Growth Stocks to Buy Now: #2

JPMorgan Chase & Co. (NYSE:JPM)

Market Capitalization:             $392.4 billion

Dividend Yield:                        2.8%

Dividend Payout Ratio:           46.8%

First Dividend:                         1827

Consecutive Annual Hikes:    10 years

The current dividend payout amount of $0.90 marks a 12.5% increase over the $0.80 dividend distribution paid in 2019. This new payout level is equivalent to a $3.60 annualized distribution and a 2.8% forward dividend yield.

Like most other equities, especially financial institutions, JPMorgan Chase was forced to cut its dividend in the aftermath of the 2008 financial crisis. After cutting its quarterly payout 87% from $0.38 to $0.05, the company paid the same flat quarterly amount for eight periods.

However, since resuming annual dividend boosts in 2011, the company has advanced its dividend payout 18-fold, which is equivalent to an average annual growth rate of 38%. Even disregarding the steep five-fold jump in the first year, JPMorgan Chase still advanced its dividend payout at an average rate of nearly 20% per year over the last eight years.

6 Best Dividend Growth Stocks to Buy Now: #1

Arbor Realty Trust, Inc. (NYSE:ABR)

Market Capitalization:             $1.8 billion

Dividend Yield:                        9.0%

Dividend Payout Ratio:           130.1%

First Dividend:                         2004

Consecutive Annual Hikes:    0 years

The Real Estate Investment Trust (REIT) boosted its annual dividend distribution 7.9% from 2019. This has been implemented through a series of smaller dividend increases throughout 2020, hiking its dividend in both the third and fourth quarters. Arbor Realty currently pays a quarterly distribution of $0.32, making an annualized payout of $1.28. It yields an impressive 8.9%, and has grown its payout an average of 19% per year for the last three years.

The company has been incredibly successful in both the short and the long-term. It provided total returns of 17.1%, roughly half of which was from dividends and the other half from capital appreciation. The REIT’s long-term returns are stronger still, rewarding its investors with 126.5% growth in the last three years and 264.0% growth in the last five.

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