Top Dividend Growth Stocks to Buy in December

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It's been proven that dividend-paying stocks return more over the long haul than their non-dividend-paying peers. But after a big run-up in share prices for many dividend stocks this year, investors are likely scratching their heads, wondering which ones could be good buys now. To answer that question, we asked three Motley Fool analysts what their favorite dividend-paying company is today. Read on to see which three companies are their favorites.

Matt Frankel
One of my favorite dividend growth stocks is Diebold (DBD). This company has a track record of dividend growth and future potential that is among the best in the market.

Diebold's 3.3% annual dividend yield doesn't exactly make this a high-income stock. However, that's not the point of dividend growth investing. What we look for is a decent dividend that will go up significantly over time as the company grows.

There is simply no other stock on the market with a better track record of increasing its dividend. Among the "dividend aristocrats" -- companies that have increased their dividends for at least 25 consecutive years -- Diebold sits at the top of the list, having increased its payout for 60 years straight.

And Diebold is still capable of innovation and growth, even after more than 150 years of being an industry leader. For example, Diebold's Responsive Banking Concept has the potential to revolutionize the way we go to the bank.

Since 1980, Diebold has averaged a total return of nearly 10% per year. And while the 3.3% dividend won't exactly make you rich overnight, double-digit total returns can certainly do the trick over the long run.

Selena Maranjian
A top dividend growth stock that you might buy in December is IBM (IBM -0.04%), though it might take some faith. The company has been struggling in recent years as it transitions away from low-margin hardware toward software and services. Still, it offers a solid dividend recently yielding 2.7%, and it has increased that payout by an annual average of 20% over the past decade and 15% over the past five years. (Its last increase was 16%.) Not too shabby, eh?

IBM's valuation looks appealing, with a current and forward-looking P/E ratio around 10, well below its five-year average of 13. Its top line has been shrinking in recent years, as has its free cash flow, but it's still netting more than $12 billion annually, which is more than sufficient to keep paying (and increasing) its dividend while making further investments in its own growth. (One of IBM's newer initiatives is in cloud computing, and its cloud-based revenue has been growing briskly.)

IBM has been boosting its earnings per share by reducing its share count through buybacks. That's not as desirable as revenue growth, but its share count has plunged by about 40% in the past decade, which increases the value of remaining shares significantly. With its deep pockets and long history of adapting to the times, IBM seems a promising investment for patient long-term investors.

Todd Campbell
United Healthcare (UNH 2.55%) may not pay the highest dividend. In fact, its 1.5% dividend yield is small in comparison to the payouts of Diebold, IBM, and other companies dividend investors could buy.

But in my opinion, dividend investing isn't just about finding stocks with attractive yields today. It's also about finding solid dividend-paying companies likely to enjoy sales and profit tailwinds that will allow them to bump up their dividend payouts for years to come. United Healthcare has such a business. It's the nation's largest health insurance company, which means it's uniquely positioned to benefit from ongoing demand tied to health insurance reform, aging baby boomers, and population growth. The insurer is the second-biggest commercial and individual insurer, the largest private Medicare insurer, and the largest private Medicaid insurer.

The company's market-leading position has led to remarkable growth. Between 2006 and last year, UnitedHealth's revenue has climbed from about $50 billion a year to more than $120 billion a year, and its net income has grown from about $3 billion to $5.6 billion. That growth has allowed it to increase its dividend from $0.61 in 2011 to $1.41 this year. That works out to a compounded annual growth rate of 32%. Because insurance enrollment is likely to head higher in the coming years, and UnitedHealth's cash dividend payout ratio is just 25%, UnitedHealth may be a good company for dividend investors to consider owning.