These stocks boosted payouts by a compound annual growth rate of more than 18% over the past decade.
A dividend yield offers some insight into how a stock will perform. However, investors who rely solely on the yield to determine a stock’s worthiness for investment can miss out on some great dividend growth stocks that might have better long-term potential to generate returns. Lower-yield stocks that aggressively increase their payouts year after year offer opportunities as well. That’s why closer looks are so important in investing.
In fact, some stocks with fast-growing payouts might just make for a better investment opportunity than a Dividend King with a 50-plus-year streak of raised payouts, especially if those payouts are only minimally increased each year.
Three stocks that have more than quintupled their dividend payouts over the past 10 years include UnitedHealth Group (UNH 0.83%), Broadcom (AVGO 5.25%), and Dick’s Sporting Goods (DKS -0.24%). Let’s take that all-important closer look to see why these three dividend growth stocks are worth consideration.
1. UnitedHealth Group
What makes UnitedHealth Group a top dividend growth stock is its ability to continue to find ways to grow and expand its business. By focusing on analytics, home health, and other areas of healthcare, it can benefit from the industry’s broad opportunities. Plus, population growth in the years ahead can also serve as a catalyst, raising the need for health insurance.
UnitedHealth pays a quarterly per-share dividend of $2.10 today, with a yield of 1.4%, which is slightly better than the S&P 500 average of 1.3%. But to truly appreciate the special dividend stock that UnitedHealth is, you need to consider what kind of a dividend-growth beast it has been. A decade ago, the stock was paying investors a per-share dividend of $0.375 per quarter — it has risen by 460% since then. That averages out to a compound annual growth rate (CAGR) of 18.8%.
UnitedHealth’s strong growth prospects and very manageable payout ratio of 51% continue to make this a top stock for all dividend investors.
2. Broadcom
Broadcom is a popular option for artificial intelligence (AI) investors looking to jump on the possibilities for the semiconductor stock to be a great growth play in the long run. And while there’s no questioning that Broadcom’s business is doing well (sales are growing at around 50% year over year), it’s also a solid dividend stock.
The company pays a quarterly per-share dividend of $0.53, which yields 1.36%. In 2014, its quarterly payout was $0.32 per share. However, when factoring in its recent 10-for-1 stock split, the payment would be equivalent to $0.032 today. That means Broadcom has increased its dividend by more than 1,556% since then, averaging a CAGR of 32.4%.
Broadcom can be an excellent option for investors who want to have the best of both worlds by owning shares of a stock that routinely boots its dividend, and that has some excellent prospects for growth.
3. Dick’s Sporting Goods
The highest-yielding stock on this list belongs to Dick’s Sporting Goods, which pays 2%. The sporting goods retailer has a strong and relatively stable business selling fitness equipment, footwear, and apparel.
It’s coming off a solid quarter that encouraged management to boost its guidance for the current fiscal year (ending in January). Management now projects the company’s comparable-store sales growth to come in between 2.5% to 3.5%, which is slightly better than the 2% to 3% range it was forecasting previously. It’s not a huge increase, but it’s a good sign of the company’s overall resiliency amid an uneven economic outlook.
That resiliency is also on full display through its dividend growth. In 10 years, Dick’s has increased its quarterly per-share dividend from $0.125 to $1.10, for substantial 780% growth during that stretch, which averages out to a CAGR of 24.3%.
Dick’s current yield is above average. With such a high growth rate in its payout and the business still doing well, this could be an ideal income stock to hang on to for years.
David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends Broadcom and UnitedHealth Group. The Motley Fool has a disclosure policy.