Dividend Stocks

The 3 Best Dividend Growth Stocks to Buy in July 2024

Finding promising dividend growth stocks in today’s market environment can be tough. This is becoming more true as a great number of names have surged in recent months. Yet, many opportunities still shine brightly if you are willing to dig deeper. In this article, we will examine three such dividend stocks that seem to stand out as top dividend growth picks. This is due to their exceptional track records of earnings and dividends and their overall potential for further success.

Each of these three stocks I have selected features a history of dividend growth spanning at least 15 consecutive years. Moreover, they have grown their payouts at a compound annual growth rate (CAGR) of at least 10% over the past decade. Such a prolonged track record of dividend growth and a strong increase pace reflect healthy growth metrics and an overall commitment to rewarding shareholders with rising capital returns.

Further, I believe these three names are generally attractive, especially given that we may be approaching interest rate cuts. Today, investors are motivated to seek reliable income from fixed securities at a favorable risk/reward ratio. Nevertheless, once interest rate cuts kick in, dividend growth stocks, even those with softer yields, are set to rise in popularity. This shift could serve as a catalyst for significant gains in the following stocks.

UnitedHealth Group (UNH)

Source: Ken Wolter / Shutterstock.com

One of the most promising dividend growth stocks to consider for July is UnitedHealth Group (NYSE:UNH). The insurer has an impressive track record of growth in earnings and dividends. Notably, the company has hiked its dividend annually for the past 15 years. Further, its 10-year dividend CAGR stands at a tremendous 21.4%.

There is a payout ratio of just 22% based on a consensus earnings-per-share (EPS) estimate of $27.70 for this year. In turn, there is no reason to assume that the company’s dividend growth pace will slow down anytime soon. Also, UNH keeps growing swiftly. This is proven with its most recent report showing a nearly 9% revenue increase to $99.8 billion and a 10.4% rise in adjusted EPS to $6.91. As such, this strong EPS growth exceeding revenue growth stresses UNH’s efficient scale. This is compounded by the expanding margins of its scalable business model and active buybacks.

Finally, after two years of underperformance, investors now have a rare opportunity to get UNH stock at an attractive valuation. Currently trading at 18.4 times this year’s expected adjusted EPS, UNH stock seems cheaply priced. This is especially true considering its robust double-digit EPS growth and potential for even more substantial dividend increases.

Automatic Data Processing (ADP)

In this photo illustration the stock market information of Automatic Data Processing, Inc. displays on a smartphone with the logo of Automatic Data Processing, Inc. ADP stock.

Source: IgorGolovniov / Shutterstock

Automatic Data Processing (NASDAQ:ADP) is the second dividend growth stock on my July list. This is another esteemed dividend growth stock. However, its share price has lagged in recent years. As such, this has provided a rather unique chance for investors.

Notably, the company has increased its dividend for 49 consecutive years. This has cemented them into a member of the elite group of Dividend Aristocrats. With its 50th consecutive dividend increase expected soon, ADP is poised to join the elite ranks of Dividend Kings. The company’s enduring success, marked by almost five decades of consecutive dividend increases, proves strong. This success can be largely attributed to its extensive client base.

Ranging from small enterprises to major global corporations that rely on its human capital management solutions—including payroll processing and HR services—the company benefits from robust, recurring revenues that have shown remarkable and consistent growth over time. To put this into perspective, since 1989, a period of 35 years, there have been only two instances where the company’s revenues declined from the previous year.

Moody’s Corporation (MCO)

A Moody's Corporation (MCO) sign in silver.

Source: Daniel J. Macy / Shutterstock.com

The final dividend growth stock on this month’s list that merits your attention is Moody’s Corporation (NYSE:MCO). The risk assessment and analytics company has raised its dividend for 15 consecutive years and features a 10-year CAGR of 13.1%, aligning with my selection criteria. This stock is also a Warren Buffett favorite, as Berkshire Hathaway (NYSE:BRK-A/NYSE:BRK-B) has a 13.3% stake in the company, a position that goes all the way back to 2001.

Moody’s has consistently delivered robust financial results powered by its strong brand reputation and innovative analytics solutions. The company has also shown disciplined capital allocation, nicely balancing investments in technology with shareholder returns, thus preserving its competitive advantage while delivering significant capital to investors. Interestingly, Moody’s has reduced its share count by 45% since 1999, which is clear evidence of its longstanding commitment to share repurchases alongside dividends.

What differentiates Moody’s from my previous two picks is that the stock appears quite expensive. Currently trading at about 39 times this year’s expected EPS, there is no doubt that MCO stock is the most expensive it has been in years. That said, due to a high chance of EPS growing in the mid-teens for years to come, powered by an ever-growing demand for analytics, further aided by ongoing repurchases, MCO stock could still be presenting a compelling opportunity ahead.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.

On the date of publication, Nikolaos Sismanis did not hold (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.

Nikolaos Sismanis is a professional research analyst with five years of experience in the field of equity research and financial modeling. Nikolaos has authored over 1,000 stock-related articles that focus on uncovering deep value opportunities, identifying growth stocks at reasonable valuations, and shining a spotlight on overlooked international equities.

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