Dividend Stocks

3 Dividend Growth Stocks to Buy Before They Raise Their Dividends (Again)

To diversify any portfolio, a solid mix of growth stocks and dividend stocks is preferred by many investors. Indeed, companies that are able to return capital to shareholders via dividends, and continue to raise their distributions each and every year, provide excellent value relative to other fixed income options in the market.

Investors should certainly focus on dividend growth stocks with stable cash flows and competitive valuations, with strong historical dividend growth rates (CAGR). These premium stocks are likely to have more share repurchases and higher growth rates. This is due to their potential for margin expansion and cash flow upside.

Investors eager for returns and a steady income stream will focus on high-dividend stocks. The three stocks below will make you look up in attention as you look towards their light, full of financial prosperity, characterized by wealth accumulation and sustainability.

C.H Robinson Worldwide (CHRW)

Source: iQoncept/shutterstock.com

Planting down their roots in Eden Prairie, Minnesota, CH Robinson Worldwide (NASDAQ:CHRW) plays an important role as a third-party logistics provider. The company focuses on providing smooth freight transport, connecting shippers through air and ocean service providers.

Notably, C.H. Robinson pays a quarterly dividend of $0.61 per share and an annualized yield of 2.85%. The company’s payout ratio is 75.08%, suggesting additional hikes could be on the horizon. And like the other companies on this list, C.H. Robinson has gone decades without missing an opportunity to provide greater dividend distribution to shareholders. That’s something I like to see.

Per C.H Robinson Worldwide’s latest balance sheet, the company’s near-term liabilities stand at $2.65 billion, with $1.26 billion owed in the years to come. Equipped with $174.7 million in cash and $2.65 billion in receivables due within a year, the company’s debt to income ratio has become an issue for some investors. That said, I think the company’s cash flow generation metrics and its market share in the freight industry provide some ballast, allowing long-term investors to rest easy.

Analysts estimate C.H. Robinson Worldwide’s net debt-to-EBITDA ratio to be sitting at a comfortable 2-times, with EBIT covering interest 6.6-times over. Now, a 55% drop in EBIT in the previous year is a cause for concern. However, if the company continues to perform well and put forward strong future earnings reports, I think it’s possible for C.H. Robinson to maintain a healthy balance sheet moving forward.

Caterpillar (CAT)

An image of the Caterpillar tractor brand logo.

Caterpillar (NYSE:CAT), a prominent mining and construction equipment manufacturer, stands proud with a healthy balance sheet. The company recently posted 12% revenue growth and $5.45 in earnings per share. These sorts of growth numbers continue to power dividend growth that force many investors to simply hold their Caterpillar position and never sell.

With over 31 years of consistent dividend growth, CAT stock current offers a 1.84% yield. Caterpillar is among the top undervalued stocks in the S&P 500 and provides a favorable addition to your portfolio. A frontrunner in a demanding industry, CAT showcases resiliency and adaptability with technology and superior products that remain unmatched in the sector.

Despite a Q3 that caused a 17% share decline in October, Caterpillar investors eagerly await its significant upcoming earnings report this February 5. Shares have mostly recovered from this dip, yet there are still concerns for the company’s outlook. Various end markets are showing positivity, as the company continues to increase its dividend and initiates a share repurchase plan. This indicates the sort of demand Caterpillar’s heavy equipment is seeing in the marketplace.

General Dynamics (GD)

image of General Dynamics (GD) website, representing dividend stocks

Source: Casimiro PT / Shutterstock.com

Within the defense sector, General Dynamics (NYSE:GD) stands tall as a beacon of hope for many who are concerned about heightened geopolitical tensions. Over the past six months, amid Russia’s Ukraine aggression, demand for artillery shells remain elevated. Other ongoing global conflicts, which the U.S. may be forced to step into, could lead for greater demand for some of General Dynamcis’ other product.s Accordingly, the stock has been on a nice run of late, and could have further upside given its value as a top-rated value stock.

Closing Q3 with a $95.6 billion backlog in marine systems and aerospace products, General Dynamics sees continued earnings growth driven by increased artillery shell demand. Analysts expect this stock could continue to move higher, the longer these conflicts continue. Additionally, with a Republican administration expecting a rise in defense policy bills, investing in defense stocks makes for a tempting choice right now.

Furthermore, analysts expect General Dynamics to grow its earnings approximately 20% this year, leading to potential earnings per share of $14.91. This would amount to a price-earnings ratio of around 21-times, which along with the company’s 2.1% dividend yield provides a pretty solid investment thesis for long-term investors betting on continued dividend growth over time.

On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Chris MacDonald’s love for investing led him to pursue an MBA in Finance and take on a number of management roles in corporate finance and venture capital over the past 15 years. His experience as a financial analyst in the past, coupled with his fervor for finding undervalued growth opportunities, contribute to his conservative, long-term investing perspective.

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