If you're looking for top dividend stocks to buy, you may be tempted to look at which high-yielding stocks are the safest ones to own. However, a better option may be to focus on dividend growth stocks. These are good investments to consider for a couple of reasons. The first is that these businesses prioritize dividend growth (which means your recurring income will rise), and the second is that it usually means their operations are also growing and in strong financial shape.
Some dividend growth stocks can mask their lackluster operations by just incrementally increasing their payout every year by just a single percentage point or less for the sake of keeping their dividend streaks going. However, the stocks listed here have made generous rate hikes.
Visa (NYSE: V), UnitedHealth Group (NYSE: UNH), and FedEx (NYSE: FDX) have all increased their dividend payments by more than 90% in just five years. Here's a closer look at why they can be excellent buy-and-hold income stocks.
1. Visa
You might overlook Visa as a possible dividend stock due to its modest yield of just 0.8%. But if not for the stock's impressive 70% gains over the past five years, the yield would be higher than it is today. Visa has simply done an excellent job of growing its business (and its dividend) over the years.
The need for credit cards isn't going away anytime soon, as more business is being done online. With Visa being a leading credit card provider, it's in a prime position to continue to benefit from the industry's growth. The company is coming off yet another stellar performance in its most recent fiscal year (ended Sept. 30) as net revenue rose by 10% to $35.9 billion and net income increased by an even higher rate of 14% as Visa's bottom line totaled $19.7 billion.
With such strong margins and continued growth, it's little wonder the company has been generous with its dividend hikes. In five years, Visa has nearly doubled its quarterly dividend from $0.30 to $0.59 today. For buy-and-hold investors, Visa is a no-brainer stock for both its terrific growth prospects and its rising dividend.
2. UnitedHealth Group
If you want a bit of a higher yield today, UnitedHealth Group's 1.4% payout may be more appealing than Visa's. It's paying slightly more than the S&P 500 average yield of 1.2%.
The health insurance giant has been facing headwinds due to rising medical expenses. However, it has still been a terrific growth company as it has expanded operations through acquisitions, including LHC Group last year and Change Healthcare the year before that. It's still eyeing more growth, but the Justice Department is currently trying to block its attempt to acquire home health company Amedisys. Investors, however, shouldn't be surprised if there are more acquisitions in UnitedHealth's future.
UnitedHealth is a growth beast, with profits soaring from $15.4 billion in 2020 to $22.4 billion in 2023. The company also increased dividend payments by 94% over the past five years, from $1.08 to its current quarterly payment of $2.10.
Trading at a relatively modest 20 times next year's estimated earnings (based on analyst expectations), UnitedHealth makes for an attractive long-term buy.
3. FedEx
Logistics giant FedEx offers the highest yield on this list -- 1.9%. Investing in the company is a great way to bet on the economy's long-term growth, especially as e-commerce expands and the need for package delivery rises in the future.
The company isn't doing all that well right now, as sales were flat in its most recent period, which ended on Aug. 31. However, the long-term picture still looks promising for FedEx. According to estimates from Grand View Research, the global courier, express, and parcel markets will grow at a compound annual growth rate of 10.6% until the end of the decade. FedEx's leadership position in the industry means there's still a lot more growth on the horizon for the business, despite what may happen in the short term.
And even if the economy struggles and FedEx's earnings numbers don't take off soon, the stock's low payout ratio of around 32% can still leave plenty of room for the company to raise its dividend in the years ahead. FedEx hasn't been shy about raising its payouts, as in five years, they have increased from $0.65 to $1.38, which represents a 112% hike during that time frame.
As long as you're willing to be patient with the stock, FedEx can be another top dividend investment to put in your portfolio today.
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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx and Visa. The Motley Fool recommends UnitedHealth Group. The Motley Fool has a disclosure policy.
