The Top 10 Dividend Growth Stocks for Young Investors

Up to date on August 18th, 2021 by Bob Ciura

Dividend shares can typically be separated into two teams. The primary group is made up of high-dividend shares. Assume telecoms and utilities, which normally provide increased dividend yields of 4%+. Their excessive yields are engaging, however the trade-off is that they have a tendency to have low dividend development charges. Typically, their dividend will increase barely beat inflation.

The second group is made up of shares which have decrease dividend yields, within the ~2% vary, however have excessive dividend development charges. These firms sometimes distribute a decrease share of their earnings at present, in order that they’ll put money into the enterprise to generate development. However, they’ll increase their dividends 10% every year or extra.

Traders on the hunt for high-quality dividend development shares ought to evaluation our listing of blue chip shares, which have all raised their dividends for at the least 10+ consecutive years.

You may obtain the entire listing of all 260+ blue chip shares (plus vital monetary metrics similar to dividend yield, P/E ratios, and payout ratios) by clicking under:

Dividend development shares with decrease yields might not attraction to retirees, who would possibly need extra earnings proper now, however they’re well-suited for younger buyers with longer time horizons.

Over time, a portfolio of those lower-yielding shares can really generate increased dividend earnings streams in the long term, as a consequence of their excessive dividend development.

This text will focus on the highest 10 dividend shares for younger buyers.

Desk of Contents

The ten shares on this article pay dividends to shareholders, and will generate double-digit dividend development of 10% per 12 months or extra going ahead.

You may immediately bounce to any particular person inventory through the use of the hyperlinks under:

Lengthy-Time period Dividend Development Inventory #10: Sherwin-Williams (SHW)

Sherwin-Williams is North America’s largest producer of paints and coatings. The corporate distributes its merchandise by means of wholesalers in addition to retail shops (together with a series of greater than 4,900 company-operated shops and services) to 120 international locations below the Sherwin-Williams title.

The corporate additionally manufactures Dutch Boy, Pratt & Lambert, Minwax, Thompson’s Waterseal, Krylon, Valspar (acquired in 2017), and different manufacturers.

Supply: Investor Presentation

Even with the coronavirus pandemic severely impacting the financial system, 2020 was one other 12 months of development for Sherwin-Williams. For the 12 months, Sherwin-Williams generated $18.36 billion in 2020 gross sales, representing a 2.6% enhance in comparison with 2019. Adjusted earnings-per-share equaled $24.58 for 2020, a 16.4% enhance in comparison with 2019.

Development has continued in 2021. Sherwin–Williams generated second-quarter income of $5.38 billion, a 16.9% enhance in comparison with Q2 2020. This end result was pushed by a 22.6% enhance within the Americas Group and a 41.3% enhance within the Efficiency Coatings Group, which greater than offset a decline within the Client Manufacturers Group. Adjusted earnings–per–share equaled $2.65 in comparison with $2.37 in Q2 2020.

We imagine that Sherwin-Williams is able to delivering 8% annualized earnings development over full financial cycles. Development can come from a number of elements, together with income enlargement by means of increased gross sales on the firm’s present shops, in addition to margin enchancment, and share repurchases. The corporate has decreased its share rely by roughly -20% all through the final decade.

Additional, acquisitions are a method for Sherwin-Williams to boost its presence, with the current Valspar transaction being a very good instance.

Sherwin-Williams is a wonderful dividend development inventory. The corporate elevated its dividend by 23% in February, and is a member of the unique Dividend Aristocrats listing.

Lengthy-Time period Dividend Development Inventory #9: Costco Wholesale (COST)

Costco’s present dividend yield is simply 0.7%, effectively under the ~1.3% common yield within the S&P 500 Index. Nonetheless, Costco is a way more interesting dividend development inventory than the present yield signifies. It delivered a 13% dividend increase earlier this 12 months. Because it initiated a dividend in 2004, it has elevated the dividend by over 10% yearly.

And, Costco pays a particular dividend from time to time, together with a $10 per-share particular payout in November 2020 and a $7.00 per-share particular dividend in 2017.

You could have heard concerning the demise of retail, however Costco has proved in any other case. It has continued to develop, even in a really aggressive retail setting.

Costco reported third quarter earnings on Might 27th, 2021, with outcomes coming in effectively forward of expectations on each the high and backside traces. Whole gross sales had been up 21.7% to $44.4 billion, which was up sharply from $36.5 billion in final 12 months’s Q1.

For the 36–week interval ending with Q3, gross sales had been up 17.7% to $130.6 billion, which was up from $111 billion within the identical 36–week interval final 12 months. Membership charges in Q3 had been up from $815 million to $901 million.

Membership development drives increased membership charges, which is a good portion of Costco’s income base. For instance, membership charges rose by 4% final quarter. Renewal charges proceed to be sturdy, with 90.2% renewal final quarter within the U.S. and Canada.

And, Costco has invested in an e-commerce enterprise of its personal. Costco continues to put money into development initiatives to maintain up with the altering retail setting. Double-digit earnings development ought to permit for top dividend development charges, and occasional particular dividends transferring ahead.

Lengthy-Time period Dividend Development Inventory #8: Mastercard Integrated (MA)

Mastercard is a world chief in digital funds. The corporate companions with 25,000 monetary establishments across the world to offer an digital fee community. Mastercard has practically 3 billion credit score and debit playing cards in use.

Income was up 36.4% to $4.5 billion, which was $130 million higher than anticipated. Adjusted earnings–per–share of $1.95 in contrast favorably to adjusted earnings–per–share of $1.36 within the prior 12 months and was $0.25 above estimates.

Gross greenback volumes improved 33% to $1.9 trillion.

Supply: Investor Presentation

U.S. development was 34% with the remainder of the world increasing 32%. Cross border volumes had been increased by 58% following declines of 17%, 29% and 34% over the previous three quarters, respectively. Purchase volumes climbed 36%, switched transaction had been increased by 41% and card in use was up 8% to 2.85 billion.

The adjusted working margin contracted 70 foundation factors to 53%. The corporate repurchased 4.6 million shares at an common worth of $370 in Q2. Mastercard has $6.4 billion, or 1.7% of its market capitalization, remaining on its share repurchase authorization.

As one of many largest firms within the digital fee area, Mastercard is more likely to profit from elevated use of debit and bank cards as a type of fee for items and providers.

Mastercard has elevated its dividend by 20% per 12 months previously 5 years. With a 2021 anticipated payout ratio of ~22%, there’s loads of room for double-digit will increase to proceed.

Lengthy-Time period Dividend Development Inventory #7: Visa Inc. (V)

Visa has a really low dividend yield, of 0.7%. A dividend yield lower than 1% may be an computerized disqualifier amongst earnings buyers who give attention to excessive yields. Nonetheless, even a tiny dividend yield can develop to a excessive yield over time, particularly given Visa’s excessive dividend development potential.

Over the previous 5 years, Visa has elevated its quarterly dividend by roughly 20% per 12 months, on common. At this fee, Visa’s dividends will double roughly each 3.5 years.

Such excessive dividend development is made attainable by Visa’s large aggressive benefits and powerful model. With that in thoughts, it isn’t shocking to see that Warren Buffett owns 10.5 million shares of Visa, which is certainly one of Buffett’s highest-quality holdings.

You may see the entire listing of Buffett’s high 20 shares right here.

Visa is a huge within the world funds trade. Visa-branded playing cards and fee merchandise facilitate over $6 trillion in world funds quantity yearly. The corporate has a number of sources of income which will be seen under:

Supply: Investor Presentation

The elemental backdrop for Visa could be very sturdy. In the latest quarter, Visa reported revenue of $6.1 billion, adjusted internet earnings of $3.3 billion and adjusted earnings–per–share of $1.49, resenting will increase of 27%, 39% and 41% respectively.

These outcomes had been pushed by a 34% acquire in Funds Quantity, a 47% acquire in Cross–Border Quantity and a 39% acquire in Processed Transactions, as the corporate benefited from economies reopening around the globe.

Throughout the quarter Visa returned $2.9 billion to shareholders in the type of share repurchases and dividends, leaving $7.7 billion remaining on the share repurchase authorization.

Visa’s development stems from the broader shift away from money. Shoppers are utilizing cell funds processing know-how and playing cards, and are snug not carrying money. There’s good motive to go cashless, as bodily forex will be misplaced or destroyed.

Visa’s most up-to-date dividend enhance of 6.7% was a bit muted than typical, because of the ongoing results of the pandemic. Nonetheless, the corporate has a 5-year dividend CAGR of 20%. With a really low payout ratio and excessive earnings development potential, Visa might proceed to extend its dividend by 20% yearly, on common.

Lengthy-Time period Dividend Development Inventory #6: Lowe’s Firms (LOW)

Lowe’s Firms is the second-largest residence enchancment retailer within the US (after House Depot). The corporate operates greater than 2,200 residence enchancment and {hardware} shops within the U.S. and Canada.

Lowe’s reported sturdy second-quarter outcomes. Internet gross sales elevated 1% to $27.6 billion. U.S. comparable gross sales declined 2.2% year-over-year, however over the previous two years rose 32%. Diluted earnings-per-share rose 14% year-over-year.

Supply: Infographic

One other key to Lowe’s success has been its booming e-commerce platform. This can be a key differentiator between profitable retailers like Lowe’s and the various retailers which might be reporting losses or going out of enterprise. Lowe’s is benefiting proper alongside the e-commerce growth.

Lowe’s enjoys aggressive benefits from scale and model energy because it operates in a duopoly with House Depot. Neither of the 2 are increasing their retailer rely considerably, and neither is serious about a worth warfare. Each ought to stay extremely worthwhile, as the house enchancment market within the US is massive sufficient for 2 firms to succeed.

In Might, Lowe’s elevated its dividend by 33%. The corporate has elevated its dividend for over 50 years in a row, inserting it on the unique listing of Dividend Kings.

Lengthy-Time period Dividend Development Inventory #5: Starbucks Company (SBUX)

Starbucks started with a single retailer in Seattle’s Pike Place Market in 1971 and now has practically 33,000 shops worldwide. The corporate operates below the namesake Starbucks model, but additionally holds the Seattle’s Greatest Espresso, Teavana, Evolution Recent, and Ethos Water manufacturers in its portfolio. The firm generates over $25 billion in annual income.

On July 27th, 2021, Starbucks introduced Q3 fiscal 12 months 2021 outcomes for the interval ending June 27th, 2021. (Starbucks fiscal 12 months ends the Sunday closest to September 30th.) For the quarter, the corporate generated internet income of $7.5 billion, representing a 78% enhance in comparison with Q2 2020. World comparable gross sales elevated 73%, pushed by a 75% enhance in comparable transactions, partially offset by a –1% decline in the common ticket.

Adjusted earnings–per–share equaled $1.01 in comparison with a lack of –$0.46 within the prior 12 months’s quarter, as Starbucks handled the pandemic. Throughout the quarter Starbucks opened 352 internet new shops, bringing the overall as much as 33,295 shops globally, of which 51% and 49% had been firm–operated and licensed, respectively.

Starbucks additionally up to date its fiscal 2021 steering, anticipating 18% to 21% world comparable gross sales development (from 18% to 23%) and reiterated roughly 2,150 new retailer openings. As well as, the corporate now expects $29.1 billion to $29.3 billion in income (from $28.5 – $29.3 billion) and adjusted EPS of $3.20 to $3.25 (from $2.90 to $3.00).

Starbucks elevated its dividend by 10% in September 2020, which was extremely spectacular given how difficult final 12 months was because of the coronavirus pandemic. With a 2021 payout ratio anticipated at ~56% and anticipated EPS development of 9% per 12 months, Starbucks might proceed to boost its dividend by at the least 10% per 12 months transferring ahead.

Lengthy-Time period Dividend Development Inventory #4: The House Depot (HD)

House Depot was based in 1978 and since that point has grown right into a juggernaut residence enchancment retailer with
nearly 2,300 shops within the US, Canada and Mexico that generate round $132 billion in annual income.

House Depot has generated wonderful development previously decade, because of the sturdy housing market and shoppers’ growing want to put money into residence renovations and enhancements.

The corporate has rewarded shareholders with wonderful dividend development as effectively:

Supply: Investor Presentation

Over the eight-year interval seen above, House Depot elevated its dividend by a mean annual fee of roughly 20% per 12 months. We count on 9% annual EPS development over the subsequent 5 years, making 10% annual dividend development an affordable estimate.

The unprecedented demand for residence enchancment tasks continues to persist into 2021 and House Depot continues to construct on this momentum.

In the latest quarter, House Depot’s gross sales elevated 8% as comparable gross sales rose 4.5% year-over-year. Diluted earnings-per-share rose 12.8%, as income development was accompanied by share repurchases.

House Depot has an anticipated payout ratio of fifty% for 2021, making the dividend payout extremely safe with room for plenty of development.

Lengthy-Time period Dividend Development Inventory #3: Nike Inc. (NKE)

Nike is a really sturdy enterprise. Its model power permits it to command pricing energy, and cost hefty costs for its sneakers and athletic attire. This results in constant development, and excessive returns on capital.

Nike is the world’s largest athletic footwear, attire and gear maker. The namesake is likely one of the Most worthy manufacturers on the planet. The corporate’s choices give attention to six classes: running, basketball, the Jordan model, soccer (soccer), coaching, and sportswear. Nike additionally owns Converse and Hurley. The firm had gross sales of $44.5 billion in fiscal 12 months 2021.

On June 24th, 2021, Nike launched This autumn and monetary 12 months 2021 outcomes for the interval ending Might 31st, 2021. For the quarter revenue got here in at $12.3 billion, representing a 95.5% enhance in comparison with This autumn 2020, as the corporate lapped poor outcomes associated to COVID–19 retailer closures. Nike posted a revenue of $1.51 billion or $0.93 per share throughout the quarter, in comparison with a lack of –$790 million or –$0.51 per share in This autumn 2020.

For the total 12 months Nike generated income of $44.5 billion, a 19.1% enhance in comparison with fiscal 12 months 2020, reflecting development throughout all geographies. Nike Direct gross sales equaled $16.4 billion, up 32%, pushed by a 64% increase in Nike Model Digital. Internet earnings equaled $5.73 billion or $3.56 per share in comparison with $2.54 billion or $1.60 per share prior.

Nike expects sturdy development to proceed by means of fiscal 2025; the corporate’s outlook contains excessive single-digit to low double-digit income development, together with mid-to-high teenagers EPS development every year.

Such sturdy development might simply permit for double-digit dividend development. Nike raised its dividend by 12% in 2020, which was a really tough 12 months for the worldwide financial system.

Nike has a present dividend yield of simply 0.7%, nevertheless it makes up for this with sturdy dividend development. Nike has elevated its dividend for 19 years in a row, making it a Dividend Achiever. Prior to now 5 years, Nike raised its dividend by roughly 11% per 12 months.

Lengthy-Time period Dividend Development Inventory #2: Microsoft Company (MSFT)

Microsoft develops, manufactures and sells each software program and {hardware} to companies and shoppers. Its choices embody working techniques, business software program, software program improvement instruments, video video games and gaming {hardware}, and cloud providers.

The inventory has a low yield under 1%, nevertheless it makes up for this with sturdy dividend development. In September 2020 Microsoft raised its dividend by 10%, marking the 19th consecutive yearly enhance.

On July 27th, 2021, Microsoft reported This autumn and monetary 12 months 2021 outcomes for the interval ending June 30th, 2021. For the quarter, the corporate generated income of $46.2 billion, representing a 21.3% enhance in comparison with This autumn 2020.

The Clever Cloud section led the way in which with 30% income development.

Supply: Investor Presentation

The development was throughout the board with Productiveness and Enterprise Processes, Clever Cloud and Private Computing rising 25%, 30% and 9% respectively. Azure, Microsoft’s excessive–development cloud platform, grew by 51% 12 months–over–12 months. Internet earnings equaled $16.5 billion or $2.17 per share in comparison with $11.2 billion or $1.46 per share in This autumn 2020.

For the 12 months Microsoft generated $168.1 billion in income, representing a 17.5% enhance in comparison with 2020. Adjusted internet earnings equaled $60.7 billion or $7.97 per share in comparison with $44.3 billion or $5.76 per share in 2020.

Microsoft’s cloud enterprise is rising at a fast tempo due to Azure, which has been rising tremendously for just a few years. Microsoft’s Workplace product vary, which had been a low–development money cow for a few years, is displaying sturdy development charges as effectively after Microsoft modified its enterprise mannequin in the direction of the Workplace 365 software program–as–a–service (SaaS) system.

Resulting from low variable prices, Microsoft ought to have the ability to preserve a stable earnings development fee for the foreseeable future.

Microsoft’s sturdy steadiness sheet additionally helps its dividend development. Its AAA–rated steadiness sheet makes it a low–danger enterprise. As of the latest quarterly report Microsoft held $130.3 billion in money and securities, $184.4 billion in present belongings and $333.8 billion in complete belongings in opposition to $88.7 billion in present liabilities and $191.8 billion in complete liabilities.

Lengthy-Time period Dividend Development Inventory #1: Apple, Inc. (AAPL)

Claiming the highest spot is Apple, the world’s Most worthy model. In response to Forbes, Apple’s model alone is value over $240 billion.

Not solely that, Apple could be very extremely worthwhile, with a excessive development fee and a very good steadiness sheet. The know-how firm designs, manufactures and sells merchandise similar to iPhones, iPads, Mac, Apple Watch and Apple TV. It additionally has a providers enterprise that sells music, apps, and subscriptions.

On July 27th, 2021, Apple reported Q3 fiscal 12 months 2021 outcomes for the interval ending June 26th, 2021. (Apple’s fiscal 12 months ends the final Saturday in September). For the quarter Apple generated income of $81.4 billion, representing a 36.4% enhance in comparison with Q2 2020.

Product gross sales had been up 37.4%, led by 49.8%, 16.3%, 11.9% and 36.0% respective positive factors in iPhones (49% of complete gross sales), Mac, iPad and Wearables, House & Equipment. Service gross sales elevated 32.9% and made up 21% of all gross sales within the quarter. Internet earnings equaled $21.7 billion in comparison with $11.3 billion in Q2 2020. Earnings–per–share doubled to $1.30, in comparison with $0.65 within the prior 12 months’s quarter

Shoppers line as much as purchase Apple merchandise, and are prepared to pay increased costs for them every year. This buyer loyalty is the results of enormous investments in analysis and improvement.

Going ahead, buyers can sit up for product releases regularly similar to new iPhone releases. This might be a significant development catalyst for Apple, for the reason that iPhone is its most vital product by far.

The inventory has a present yield under 1%, as its share worth has soared previously a number of years. However with a payout ratio of simply 15% anticipated for 2021, Apple ought to proceed to be a superb dividend development inventory.

Last Ideas

Inventory with low dividend yields is probably not as engaging as these with excessive dividend yields of 5%+, however buyers shouldn’t keep away from them simply due to their low yields. That is particularly the case for shares that increase their dividends by 10%-20% (or extra) every year.

With such excessive dividend development charges, the shares on this listing can ultimately present increased earnings than their high-yielding counterparts over time. With sufficient time, buyers can really earn increased yields from dividend development shares.

In consequence, these 10 shares ought to have attraction to younger buyers seeking to construct a dividend development portfolio.