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The 3 Best Dividend Growth Stocks in the Dow in 2019

By Dan Caplinger - Oct 12, 2019 at 11:20AM

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If you want to see big dividend hikes, these companies have delivered.

If you want portfolio income, dividend stocks have been the place to look lately. With yields on alternatives like bank CDs and bonds coming down, it's hard to get the income you need without looking to the stock market.

Stocks can be risky, though, and so adding dividend payers to an investment portfolio makes some people nervous. That's why sticking with blue-chip stocks like the members of the Dow Jones Industrial Average (^DJI 0.00%) can be a great way to manage risk while still getting the income you need.

The 30 companies in the Dow are all well-known, mature businesses. But that doesn't mean you have to give up your hopes for growing payouts over time. Over the past year, Home Depot (HD 0.82%), Boeing (BA -0.88%), and UnitedHealth Group (UNH 0.24%) have all delivered dividend increases of 20% or more. They also have demonstrated their ability to stay strong even in the face of challenging conditions in the past -- a sign of security that any income investor can appreciate.

This dividend stock feels like home

Home Depot is the king of the home-improvement retail sector, but from a dividend standpoint, it plays second fiddle to its biggest competitor. Lowe's Companies is a Dividend Aristocrat with decades of annual dividend increases under its belt. But Home Depot has tried to catch up, and it's put together a streak of 10 consecutive payout boosts and pays a yield of 2.3%.

Inside of Home Depot store with flooring and design center in foreground.

Image source: Home Depot.

Home Depot's 2019 dividend increase was the largest that shareholders have seen in a while. The new quarterly payout of $1.36 per share marking a 32% increase from the previous $1.03 per share dividend.

Fundamentally, Home Depot's long-term growth has been strong, but short-term factors have held back the company recently. Even though slowing same-store sales growth has troubled some investors, Home Depot remains confident that temporary headwinds like bad weather and unfavorable movements in commodity prices will reverse course in the long run and allow the company to reap the rewards of its operational excellence.

Flying higher despite turbulence

Boeing's record of annual increases doesn't go back as far as Home Depot's, but the aerospace giant has still put in a respectable performance. For eight straight years, the aircraft manufacturer has delivered larger dividend payments to its shareholders, including a more than 20% boost in early 2019 that brought the quarterly payment to $2.055 per share. That works out to a yield of about 2.2%.

Obviously, most of the news about Boeing lately has centered on the status of its 737 MAX line of aircraft. Having been grounded in March after two major accidents, the MAX still doesn't have a firm date at which investors can expect the aircraft to return to service. That's hurt Boeing's cash flow, which eventually could force the aerospace giant to consider whether to reduce dividends. With capacity to borrow money at attractive interest rates, however, it's likely that Boeing will instead preserve its dividend in order to avoid the loss of investor confidence that a cut would bring.

Healthy dividends

UnitedHealth Group rounds out the list of top Dow dividend raisers, having celebrated a 20% payout hike around midyear. The health insurance and healthcare services provider has rewarded shareholders with annual dividend increases for 10 straight years, although its current yield of just under 2% gives UnitedHealth the lowest yield of these three Dow stocks.

The healthcare industry has been in the crosshairs of regulators for a long time, with many looking to impose limitations in an effort to reduce costs of key healthcare needs like prescription drugs. Yet UnitedHealth has continued to grow, getting balanced performance from its health insurance unit and its Optum health services division. With an aging population needing ever greater amounts of healthcare, UnitedHealth has the experience and determination to keep finding new ways to serve customers no matter what happens on the regulatory front.

Be smart with your dividend investing

Many dividend investors just go with the stocks that pay the highest yields, but that's not always the best idea. By focusing on companies that are looking to grow their dividends at a sharp rate, you can often get in before the yield-seeking crowd takes notice. UnitedHealth, Boeing, and Home Depot have their fair share of challenges, but they've been able to keep paying shareholders consistently, and that's a mark of distinction in today's stock market environment.

Dan Caplinger owns shares of Boeing. The Motley Fool has the following options: short February 2020 $205 calls on Home Depot and long January 2021 $120 calls on Home Depot. The Motley Fool recommends Home Depot, Lowe's, and UnitedHealth Group. The Motley Fool has a disclosure policy.

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Stocks Mentioned

The Boeing Company Stock Quote
The Boeing Company
$165.04 (-0.88%) $-1.46
UnitedHealth Group Incorporated Stock Quote
UnitedHealth Group Incorporated
$535.06 (0.24%) $1.31
The Home Depot, Inc. Stock Quote
The Home Depot, Inc.
$309.69 (0.82%) $2.52
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$32,726.82 (0.00%) $0.00

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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