Investing in dividend stocks is a popular strategy for many investors. These stocks have the potential to generate consistent cash flow, regardless of market conditions. Among the top dividend payers are the stocks listed in the Standard & Poor’s 500 index (S&P 500), which consists of some of the largest and most profitable companies in America.
Let’s take a look at some of the S&P 500’s fastest-growing dividends over the past five and ten years.
Top S&P 500 stocks for 5-year dividend growth
Companies with the highest five-year growth rates are typically either newly established dividend payers or have recently shifted their focus towards dividends as part of their financial strategy. This often results in exceptionally high dividend growth rates over the short term.
While these high growth rates are appealing, they usually come with a lower dividend yield compared to slower-growing companies. However, many energy companies are now starting to offer significant payouts. (Data as of Sept. 20, 2024.)
| Company | 5-year dividend growth | Dividend yield |
|---|---|---|
| Cigna Group (CI) | 161.8% | 1.6% |
| NRG Energy (NRG) | 65.9% | 2.0% |
| Devon Energy (DVN) | 57.1% | 4.9% |
| Lennar (LEN) | 56.5% | 1.0% |
| Paccar (PCAR) | 42.3% | 1.21% |
| EQT (EQT) | 38.3% | 1.8% |
| Coterra Energy (CTRA) | 36.2% | 3.6% |
| EOG Resources (EOG) | 32.4% | 2.9% |
| Tractor Supply Co (TSCO) | 28.0% | 1.6% |
| ConocoPhillips (COP) | 27.5% | 3.2% |
Source: Charles Schwab
Now, let’s compare these companies with those that have maintained rapid dividend growth over the past decade.
Top S&P 500 stocks for 10-year dividend growth
While it’s challenging for companies to sustain the same level of growth over a full decade, many still achieve impressive growth rates over the span of ten years.
For example, banks started increasing their dividends from low levels following the financial crisis, leading to significant growth rates. (Data as of Sept. 20, 2024.)
| Company | 10-year dividend growth | Dividend yield |
|---|---|---|
| Cigna Group (CI) | 61.8% | 1.6% |
| CDW Corp (CDW) | 49.6% | 1.1% |
| Citigroup Inc (C) | 48.5% | 3.6% |
| Vulcan Materials (VMC) | 45.7% | 0.7% |
| Lam Research (LRCX) | 45.6% | 1.2% |
| DR Horton (DHI) | 38.9% | 0.6% |
| Broadcom (AVGO) | 36.8% | 1.3% |
| Bank of America (BAC) | 36.8% | 2.5% |
| Coterra Energy (CTRA) | 34.6% | 3.6% |
| Morgan Stanley (MS) | 32.2% | 3.7% |
Source: Charles Schwab
Factors to consider when investing in dividend stocks
While rapid dividend growth is enticing, it’s essential to assess the sustainability of the dividend before making an investment decision. Here are a few key factors to consider:
- Current dividend yield: A very high or very low current dividend yield may indicate potential issues with the company’s financial health. It’s crucial to find a balance that indicates stability and growth potential.
- Payout ratio: The payout ratio, which is the dividend divided by the company’s profit, helps determine the sustainability of the dividend. A lower payout ratio typically signifies a safer dividend and potential for future growth.
- Business stability: Companies with stable business models are more likely to sustain and increase their dividends over time. It’s important to assess the industry and economic factors that may impact the company’s ability to pay dividends.
- Timing: Consider the timing of dividend growth, as certain industries may experience fluctuations that impact dividend payouts. It’s essential to evaluate the long-term sustainability of dividend growth.
Companies with a history of consistent dividend payments, such as the Dividend Aristocrats, are often considered reliable investment options. These companies have a track record of increasing dividends for 25 years or more.
If you’re aiming to build a strong dividend portfolio, consider reinvesting your dividends to benefit from compounding returns. Look for brokers that offer fractional shares to maximize your dividend reinvestment strategy.
Conclusion
Reviewing the fastest-growing dividend stocks can provide valuable insights when seeking attractive investment opportunities. However, thorough research and understanding of the company’s financial health and growth prospects are essential. Companies with a proven track record of increasing dividends are likely to continue this trend, making them appealing long-term investments.
Editorial Disclaimer: It’s important for all investors to conduct independent research before making investment decisions. Past performance is not indicative of future results in the investment market.