Top Dividend Growth Stocks to Watch Right Now
Investing in Dividend Growth Stocks
Dividend growth stocks can make for ideal long-term investments. These are stocks which have demonstrated a commitment to not only paying dividends but also increasing their payouts over time. Achieving consistent dividend growth can be challenging amid varying economic conditions, and long streaks are often indicative of strong and versatile operations of the underlying businesses.
Here are three dividend growth stocks that may announce another round of dividend hikes soon: Microsoft (NASDAQ: MSFT), Verizon Communications (NYSE: VZ), and Texas Instruments (NASDAQ: TXN).
Microsoft’s Growth Potential
Tech giant Microsoft might not initially appear as a top dividend stock, but it is an underrated income investment worth considering. While its dividend yield of 0.7% is modest compared to the S&P 500 average of 1.3%, Microsoft has been growing its dividend for nearly two decades. The company recently announced a 10% increase to its dividend payment.
It is highly probable that Microsoft will announce another dividend hike next month as its payout ratio is incredibly low at 25% of earnings. Given the attractive growth prospects in artificial intelligence and video games and having successfully acquired Activision Blizzard, the company seems optimistic about its future. Assuming it follows the same pattern as in previous years, Microsoft will likely announce a hike to its dividend soon. The primary question remains about the size of the increase.
Whether you are a growth investor or looking for a strong dividend, Microsoft represents an ideal investment to buy and hold.
Verizon Communications’ Dividend Appeal
Verizon may not have exceptional growth prospects, which has affected the stock's performance in recent years. This year, its shares are up a relatively modest 11%, while the S&P 500 has risen by more than 18%.
However, what makes Verizon appealing to investors largely revolves around its dividend. Currently, its dividend yields an impressive 6.5%, which is notably high for a telecom stock. As interest rates decrease, it’s likely that more investors will be drawn to Verizon for its attractive payout, potentially pushing the stock price higher.
Verizon boasts the longest dividend growth streak in the U.S. telecom industry, having increased its dividend for 17 consecutive years. The last increase occurred recently, boosting its quarterly payout from $0.6525 to $0.665.
With generated free cash flow just under $14 billion over the past four quarters and a dividend payout of about $11.1 billion during the same timeframe, Verizon has ample room for further dividend increases this year.
If you're primarily seeking a solid dividend stock, Verizon is a reliable option to consider for your portfolio.
Texas Instruments: A Steady Performer
Another noteworthy company, Texas Instruments, raised its dividend payments last and could do so again soon. The semiconductor manufacturer announced a 5% increase to its payout last year, marking the 20th consecutive year of dividend growth. Currently, the stock yields at 2.5%.
Despite facing challenges, including a 16% revenue decline in its most recent quarter due to weakening demand in automotive and industrial sectors, Texas Instruments' payout ratio remains at around 90% of earnings. This suggests the potential for justifying another rate hike this year, even if it may be more modest than in previous years.
Texas Instruments has considerable long-term growth potential, particularly since its products are integral to advancing various industries. However, investors should keep an eye on the payout ratio for any signs of possible dividend cuts.
Evaluating Investment in Microsoft
Before purchasing stock in Microsoft, consider the following factors:
Market Position
Microsoft continues to display a strong position in technology, with promising advancements in sectors like artificial intelligence and cloud computing. Holding shares could lead to solid long-term returns.
Dividend Reliability
The company's history of increasing dividends positions it as a reliable choice for income-focused investors. Regular dividend hikes underline Microsoft's commitment to returning value to shareholders.
Future Growth Prospects
With numerous growth opportunities on the horizon, particularly in innovative technologies, Microsoft demonstrates strong potential for profit generation and continued stability for investors.
Financial Resilience
Microsoft has maintained a solid financial standing, with substantial cash reserves enabling it to navigate economic challenges and invest in strategic growth initiatives.
Frequently Asked Questions
What are dividend growth stocks?
Dividend growth stocks are shares in companies that have a consistent history of paying and increasing their dividends over time, making them appealing for long-term investment.
Why is Microsoft considered a good dividend stock?
Microsoft has increased its dividends for nearly two decades, demonstrating reliability and commitment to returning value to shareholders, alongside promising growth prospects.
What is the significance of Verizon's dividend yield?
Verizon's high dividend yield indicates a strong income potential, making it an attractive investment for those primarily interested in dividend income, especially in the telecom sector.
How often do these companies increase their dividends?
Companies like Microsoft, Verizon, and Texas Instruments have established histories of increasing their dividends annually, reflecting strong operational performance and commitment to their investors.
Why is the payout ratio important?
The payout ratio indicates the percentage of earnings distributed as dividends. Understanding this figure helps assess the sustainability of dividend payments and potential risks of cuts.
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