In recent years, inflation has been rising. A popular meme on the internet is the saying that if you don’t receive an 8.60% increase in your income, you actually receive a salary reduction. This is very relevant for those still earning a salary, and more relevant for those living on dividends.
In general, dividend income tends to grow above the inflation rate over time. That doesn’t mean it grows above the inflation rate every single year however. There may be a lag, but over time dividends provide protection against inflation. This is true for a diversified portfolio of stocks of course. Some companies raise dividends above the inflation rate, while others closely match it; the third group raises dividends at a slower rate.
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Here it is important to build a portfolio that includes three groups of dividend growth stocks:
- High dividend growth with lower dividend yield
- Companies are in the sweet spot in terms of dividend yield and dividend growth
- High -yield companies with slower dividend growth rates
Dividend Income Growth
The most important thing of course is to make sure that the economic machine of each company is well developed, so that the company continues to grow revenues and profits throughout the rise and fall of the economic cycle. A company that can successfully pass on cost increases to its customers equals its weight in gold. Increasing revenue per share can help increase dividend income, which in turn means your dividend income can maintain purchasing power.
In the past week, several companies have raised dividends on shareholders. I exclude those who have raised dividends for at least a decade. You can observe how the companies with the highest yield of dividends grew at a very slow rate, even if it was consistent with what they had done in the previous 5 or 10 years. You can also observe that companies that yield a little less are able to grow dividends at the rate of or faster than inflation.
Although this is an isolated sample of a week’s worth of dividend increases from the universe of dividend growth stocks, it’s still nice to illustrate the point I’m making.
Caterpillar Inc. (NYSE: CAT) manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines worldwide.
Caterpillar raised its quarterly dividend by 8.10% to $ 1.20/share. Caterpillar has paid higher annual dividends to shareholders for 28 consecutive years and is a member of the S&P 500 Dividend Aristocrat Index. Over the past decade, the company has been able to raise dividends at an annual rate of 9%.
The stock sells 18 times forward earnings and offers a dividend yield of 2.15%.
Target Corporation (NYSE: TGT) works as a general merchandise retailer in the United States.
The company raised its quarterly dividend by 20% to $ 1.08/share. This is the 51st consecutive year that Target has raised its annual dividend. Over the past decade, this dividend king has been able to raise annual distributions by 11.10%/year.
This dividend king sells 17.42 times forward earnings and yields 2.89%.
UnitedHealth Group Incorporated (NYSE: UNH) works as a diversified health care company in the United States. It works in four segments: UnitedHealthcare, Optum Health, Optum Insight, and Optum Rx.
The company raised its quarterly dividend by 13.80% to $ 1.65/share. That’s the 13th consecutive annual dividend increase for this dividend achiever. Over the past decade, the company has been able to raise dividends at an annual rate of 24.80%.
The stock is selling 22.35 times forward earnings and yields 1.36%.
Casey’s General Stores, Inc., (NASDAQ: CASY) operates convenience stores under the name Casey’s and Casey’s General Store.
The company raised its quarterly dividend by 8.60% to $ 0.38/share. This is the 23rd consecutive year of annual dividend increases for this dividend achievement. Over the past decade, the company has been able to raise dividends at an annual rate of 9.20%.
The stock is selling 20.83 times forward earnings and yields 0.80%.
Universal Health Realty Income Trust (NYSE: UHT) is a real estate investment trust that invests in health care and human service-related facilities including acute care hospitals, rehabilitation hospitals, sub-acute care facilities, medical/office buildings, free-standing emergency departments and child care centers.
The REIT raised its quarterly dividend by 0.70% to $ 0.71/share. The new dividend is 1.42% higher than the dividend paid at the same time last year. That’s the 37th consecutive annual dividend increase for this dividend champion. Over the past decade, the company has been able to raise dividends at an annualized rate of 1.40%.
The REIT sells 14.50 times the FFO and yields 5.34%.
Oil-Dri Corporation of America (NYSE: ODC) develops, manufactures, and sells sorbent products in the United States and around the world. It operates in two segments, Retail and Wholesale Products Group; and Business to Business Products Group.
The company raised quarterly dividends by 3.70% to $ 0.28/share. This declaration marks the nineteenth consecutive year that Oil-Dri dividends have risen. That was the 20th consecutive year of annual dividend increases for this dividend achiever. Over the past decade, the company has been able to raise dividends at an annual rate of 4.90%.
The stock is yielding 4.15%.
Citizens Financial Services, Inc. (NASDAQ: CZFS) operates as the bank holding company for First Citizens Community Bank providing a variety of banking products and services for individuals, businesses, governments, and institutional customers.
The company raised its quarterly dividend by 3.20% to $ 0.475/share. This is the 25th year of consecutive annual dividend increases for this new dividend champion. Over the past decade, the company has been able to grow dividends at an annual rate of 6.50%/year. The five -year annual dividend growth rate is a more modest 2.30% however.
The stock is yielding 2.88% and selling 9.76 times forward earnings.
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