In dividend investing, looking at yield alone isn’t sufficient. A better approach, especially in an inflationary environment, is to consider dividend growth stocks to buy. This way, you can beat inflation as they increase payments.
Stocks with a long-term record of dividend payments are high-quality stocks for a reason. The ability to sustain revenue growth through various economic cycles proves their competitive strengths and durability. Also, they have to be profitable and cash-flow-generating companies to afford returns to shareholders. Since dividends are paid in cash, they signal that the company is producing actual earnings.
Today’s dividend growth stocks to buy are from the dividend kings list. These are companies that have increased their dividends for over 50 consecutive years. This record is a testament to their enduring strength and longevity.
The following dividend kings are well-positioned to deliver earnings growth, enabling them to continue this dividend growth record. Buy them today for long-term outperformance and income growth.
Nucor (NUE)
This steel company stands out for its longevity and dividend growth record. It’s the largest and most diversified steel company in the U.S. and has increased its dividend for 51 consecutive years.
Today, as we begin the energy transition, Nucor (NYSE:NUE) is positioned for sustained earnings growth that will deliver increasing dividends. Global renewable energy capacity grew 50% in 2023 and will grow from 510 gigawatts in 2023 to 7,300 GW in 2028. The growth in wind and solar installations will drive steel demand.
Furthermore, with the Inflation Reduction Act (IRA) incentives, steel demand growth will remain elevated. Nucor has expanded capacity and planned new mills to meet the soaring demand. It’s currently in the construction phase of its North Carolina rebar micro mill and West Virginia sheet mill.
The company is off to a great start in 2024, generating $1.5 billion in EBITDA and returning $1.1 billion to shareholders in the first quarter. Furthermore, it entered an agreement to supply Mercedes-Benz (OTCMKTS:MBGYY) with Econiq-RE for vehicle production in Tuscaloosa, Alabama.
These developments portend more growth to Nucor’s 1.25% dividend. The steel producer has grown its dividend at a 6% compounded annual growth rate over the last five years. Furthermore, the payout ratio is below 20%, presenting a significant latitude for dividend growth.
Parker-Hannifin (PH)
Parker-Hannifin (NYSE:PH) is one of the top dividend growth stocks to buy due to its exposure to attractive end markets. The firm’s portfolio is heavily exposed to electrification, digitization and clean energy trends in market verticals such as energy, aerospace, transportation, heating, ventilation and air conditioning.
Management sees a massive opportunity in electrification driven by its aerospace, off-highway and transportation solutions. For instance, they project a 20% growth rate in off-highway equipment. The adoption of electrification will boost demand for its ePumps, digital valves, electric motor controllers and battery pack thermal management solutions.
Moreover, there are digital opportunities in key markets like semiconductors, data centers and factory automation. It sells tools and equipment such as pneumatic and flow regulator valves, water cooling manifolds, seal rings and liquid cooling systems.
All these opportunities make Parker-Hannifin one of the dividend growth stocks to buy. At the May 16 investor presentation, management outlined fiscal year 2029 targets of 4-6% revenue CAGR and a more than 10% annual adjusted EPS growth.
Parker-Hannifin reported EPS of $7.78 in FY2015 and expects $24.75 in FY2024, a 14% CAGR. With growing end markets, EPS growth will continue supporting dividend increases. A 13% dividend growth CAGR over the past five years and a 24% payout ratio highlight the potential going forward.
Archer Daniels Midland (ADM)
Food security is a key concern as the world population grows and Archer Daniels Midland (NYSE:ADM) is a major player in this field. It processes agricultural products and provides ingredients for sustainable nutrition.
Over the years, this business has proved lucrative with stable growth. As a result, Archer Daniels Midland has generated consistent profits and rewarded shareholders with dividend increases for 52 years. As of this writing, it offers a compelling 3.2% dividend that has grown at a 7.4% CAGR over the past five years.
Even better, the stock is trading at a historically low price-to-earnings multiple due to accounting malpractice at the nutrition unit. Consequently, the U.S. Department of Justice also launched a probe into this scandal. Today, ADM stocks trade at a forward P/E multiple of 11 times, compared to the five-year average of 13 times.
To put things into perspective, the weakness presents an opportunity in one of the best dividend growth stocks to buy. The company revised its financials and management maintained its adjusted full-year EPS guidance of $5.25 to $6.25 after Q1 2024 results. They also declared a $0.5 per share quarterly dividend on May 1. These developments signal that the accounting issues will have minimal financial impact.
On the date of publication, Charles Munyi did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.