Investing in dividend growth stocks is one of the most reliable strategies for preserving and growing capital in the stock market. These companies, with their proven track records of consistently increasing shareholder payouts, demonstrate financial strength, competent management, and a competitive edge in their respective industries. Such stocks offer investors a potent combination of steady income and potential for capital appreciation.
However, not all dividend growers are created equal. A select few stand out from the crowd, boasting exceptional dividend-growth rates and promising long-term financial outlooks. These elite performers represent particularly compelling opportunities for investors seeking to maximize their returns through dividend growth investing.
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Here are two of the best dividend growth stocks worth considering right now.
A leader in logistics with a blistering dividend growth rate
FedEx (NYSE: FDX) is one of the top players in the global logistics industry. The company has increased its cash dividend to its shareholders at an eye-popping rate of 15.5% per year, on average, over the last five years. For context, the top dividend growth stocks average an annual boost of a far more modest 6%.
What's more, the logistics titan sports a rather modest payout ratio of around 29%. Even though FexEx's yield of 2.15% isn't exceptional, the company should have little trouble maintaining its blistering dividend growth rate in the years ahead.
FedEx's stock is also downright cheap at current levels. With shares trading at under 12 times forward earnings, the overnight-delivery pioneer is attractively priced, compared to the benchmark S&P 500 , which trades at over 22 times forward earnings.
FedEx isn't a growth machine, evidenced by its low-single-digit top-line forecast over the next two fiscal years. But its entrenched competitive position in a growing industry, commitment to rewarding loyal shareholders, and bargain-basement valuation paint a bright future for its shares.
Healthcare's diversified juggernaut
Johnson & Johnson (NYSE: JNJ) stands out as a top-tier dividend growth stock in the healthcare sector. With its highly diversified portfolio spanning pharmaceuticals and medical devices, J&J appears poised for modest but steady top-line growth in the coming years.
While this outlook may seem unexciting at first glance, J&J's true strength lies in its proven ability to compound returns over time. Speaking to this point, the company has a 62-year track record of consecutive dividend increases. And with an average annual dividend growth rate of 5.62% over the past five years and a conservative payout ratio of around 70%, J&J's dividend program is an exceptionally safe play for income investors.
J&J's margin of safety is further highlighted by its top-tier balance sheet. Specifically, the healthcare company sports a AAA credit rating, according to S&P Global . The company's rock-solid balance sheet and prudent capital-management strategy should allow it to overcome upcoming patent expirations and rising competition for some key products.
All told, J&J stock is worth considering for its dependable dividend growth, diversified business structure, and top-notch balance sheet.
George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends FedEx and S&P Global. The Motley Fool recommends Johnson & Johnson. The Motley Fool has a disclosure policy .
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