A dividend growth stock can be an extremely valuable investment to hold in your portfolio as it can be a source of recurring income. As the company raises its dividend, that increase can more than offset the effects of inflation, resulting in even more income down the road. This gives you an incentive to buy and hold for a good long while.
Three stocks that routinely raise their dividend payments and could be due for another round of increases in November are Merck (NYSE: MRK), Automatic Data Processing (NASDAQ: ADP), and HP (NYSE: HPQ). Here's a look at how much these stocks pay today and why more rate hikes may be around the corner.
Merck
Drugmaker Merck pays a dividend that today yields right around 3%. That's more than double the S&P 500 average yield of 1.3% and provides investors with plenty of incentive to buy the healthcare stock right now.
The company has also been increasing its dividend for more than a decade, and the last time it raised its payout was on Nov. 28, 2023. Merck boosted its dividend by $0.04 to $0.77, for an increase of approximately 5.5%.
Given that Merck has a fairly modest payout ratio of less than 60%, the odds are high that it will announce another increase to the dividend in November. Even though investors may be concerned about a looming patent cliff for its top cancer drug Keytruda later this decade, Merck has been bolstering its pipeline.
The company recently obtained approval for Winrevair, a treatment for pulmonary arterial hypertension, which has the potential to generate billions in revenue. Merck seems to be in a good position to continue growing its business while still being able to pay a rising dividend.
For buy-and-hold investors, Merck is a stock that could hold a lot of promise as it pays a growing dividend. It's reasonably valued, trading at around 19 times trailing earnings.
Automatic Data Processing
Automatic Data Processing, or ADP, is a leading provider of payroll and human resources solutions for businesses. Its services are crucial for companies all over the world. From an investment point of view, that makes it a fairly safe and stable stock to invest in.
The technology company has steadily grown its operations over the years, and with profit margins of around 20%, a lot of its top-line growth flows through to the bottom line. As ADP grows its earnings, it distributes that back to its shareholders. While its 1.9% dividend yield may look relatively modest, the real value is in hanging onto the stock for years and even decades.
In November of last year, the company announced it was increasing its dividend for a 49th consecutive year -- boosting it by 12%, and despite the generous raise, its payout ratio remains manageable at around 60%. It would be a downright shock if ADP doesn't raise its dividend again this year, as that would mean it hits the monumental 50-year mark.
HP
Computer company HP last announced a dividend increase in November 2023 when it raised its quarterly payout by 5%. Today, the stock pays its investors 3%, and there's plenty of room for the company to justify another raise, given its fairly low payout ratio, which is less than 40% of earnings.
HP has been generating modest growth of late, but there's reason to be optimistic that the business could get a boost with the launch of new computers that utilize artificial intelligence (AI). AI-powered PCs could provide consumers with an incentive to upgrade their computers and lead to a surge in revenue and profit for the company.
The business has been growing in the low single digits. However, with a potential catalyst ahead, HP has the potential to be not just a good dividend stock, but also an underrated growth investment.
Investors are heavily discounting the stock, as it trades at just 13 times its earnings. Now could be a prime time to buy HP as an acceleration of its growth rate could be what's needed for the stock to command a higher earnings multiple.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends HP and Merck. The Motley Fool has a disclosure policy.
