Dividend growth investing is my favorite long-term investing strategy. Companies that consistently raise their shareholder dividends pay you more cash. Plus, companies need steady, profitable growth to pay those increasingly larger dividends, so it's an excellent strategy for finding high-quality companies that tend to perform well over time.
The best way to make dividend growth stocks work for you is to buy them at a reasonable price and hold them for as long as their fundamentals allow them to increase those dividends.
Here are three outstanding dividend growth stocks trading at attractive valuations today. Buy these stocks for their strong histories and bright futures.
1. Chevron
Chevron Corporation(NYSE: CVX) is an integrated oil and gas company and one of the most prominent players in fossil fuels today. It explores for and extracts oil and gas from areas around the world, refines it, and sells it to the market. Although Chevron's business can fluctuate with oil and gas prices, the company has maintained the financial discipline to increase its dividend for 37 consecutive years, enduring the industry's ups and downs. The dividend is only 60% of estimated 2024 earnings, and Chevron's AA- credit rating reflects a healthy balance sheet if economic conditions deteriorate again.
Renewable energy may eventually start to weigh on fossil fuels, but peak oil demand could still be at least a decade away. Even then, oil and gas should probably thrive for at least a few decades, which means the company's dividend is poised to grow for the foreseeable future. The company also has Warren Buffett's stamp of approval, who owns the stock as Berkshire Hathaway's fourth-largest holding. The stock yields almost 4.4% today, slightly above Chevron's 10-year average. Its high yield could grow increasingly attractive as interest rates continue to fall.
2. Snap-On
Tools are close to the heart of anyone who works with their hands. Snap-On(NYSE: SNA) tools are arguably the leading brand. The company manufactures various tools and equipment used by laborers in industries ranging from automotive to railroads. The company's brand recognition among professionals and robust distribution and sales networks have driven Snap-On's success for over 100 years. Snap-On has become a solid dividend growth stock in recent years. The company has paid and raised its payout for 15 consecutive years.
Investors have enjoyed an average dividend hike of nearly 15% over the past five years, and this trend could continue. Snap-On's dividend payout ratio is still less than 40% of the company's estimated 2024 earnings. Snap-On's business centers around highly skilled manual labor, which is at low risk of technological disruption anytime soon. Thus, the stock could be in the early innings of years of inflation-beating dividend growth ahead. Plus, the stock has an attractive 2.6% yield today. Snap-On only trades at 15 times earnings, an attractive price for a quality business analysts believe will grow earnings by nearly 8% annually over the coming years.
3. Union Pacific
Wide-moat industries with a low risk of disruption are conducive to sustained dividend growth. Railroads are still the best way to transport large volumes of goods across the continent, and only a few established players dominate the market. Union Pacific(NYSE: UNP) is one of them. The company operates a rail network spanning 32,000 miles throughout the United States. The company has paid and raised its dividend for 17 consecutive years. The dividend yields 2.2% at the stock's current price, and the payout ratio is manageable at just 48% of Union Pacific's estimated 2024 earnings.
Management believes industries, such as grain and grain products, petrochemicals, and trade between the United States and Mexico, will drive long-term growth. Analysts estimate that Union Pacific will grow earnings by an average of nearly 10% annually over the next three to five years. Meanwhile, the stock trades at 22 times 2024 earnings estimates, a reasonable P/E ratio for a wide-moat business sporting double-digit earnings growth. Railroads can be vulnerable in a recession, but Union Pacific's A- credit rating and healthy dividend financials should give investors the confidence to hold the stock.
Should you invest $1,000 in Chevron right now?
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Justin Pope has positions in Chevron. The Motley Fool has positions in and recommends Berkshire Hathaway, Chevron, and Union Pacific. The Motley Fool has a disclosure policy.
