Dividend stocks are incredible wealth builders. Despite the fact that thousands of listed companies pay dividends, few are hyped and popular among income investors. If you dig a little deeper, you'd be astounded that so many top dividend-paying companies fly under the radar.
These companies not only pay dividends, but have also grown them for years and intend to continue doing so. Here are three such unknown but amazing dividend growth stocks calling out for your attention.
COVID-19 is boosting this stock
The Clorox Company (CLX 0.25%) announced a 5% dividend increase this past May, marking its 43rd straight year of a dividend raise. In absolute terms, Clorox's dividend per share has more than doubled in the past decade.
The coronavirus outbreak sent demand for Clorox's cleaning products like wipes, bleach, and disinfectants through the roof. In the quarter ended June 30, Clorox's sales jumped 22% year over year, driven by double-digit volume growth in all its segments: health and wellness, household, and lifestyle. Health and wellness, which includes cleaning, reported 33% higher sales during the quarter. Some of Clorox's top brands include Pine-Sol, Chux, Fresh Step, Burt's Bees, Poett, and Formula 409. Most of these are leading brands with the largest market share in their respective industries.
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Although these are exceptionally good times for Clorox, the company has been around for more than a century and has come a long way, generating sales worth $6.7 billion in fiscal 2020. Between 2015 and 2020, Clorox's sales and earnings per share clocked compound annual growth rates of 3.5% and 10%, respectively. Clorox is targeting 2%-4% annual growth sales and free cash flow worth 11%-13% of net sales under its innovation-driven IGNITE strategy. Dividends play second fiddle only to growth, so that's a very favorable capital allocation policy from an income investor's standpoint and makes this 2%-yielding dividend very reliable.
A resilient business with incredible dividend growth
You probably already know Brookfield Renewable (BEP -0.05%) (BEPC 0.23%) as one of the top renewable energy stocks, or even a top growth stock -- but did you know that it's also an incredible dividend stock?
Brookfield has consistently rewarded shareholders with bigger dividends year after year: Its dividends have grown at a compound annual growth rate of 6% since 2000. That incredible dividend growth has contributed massively to the stock's returns over the years.
Brookfield's dividends shouldn't stop growing thanks to the company's massive pipeline and commitment to shareholder returns. Brookfield, which primarily generates hydropower but has also expanded aggressively into solar and wind lately, has 18,000 megawatts of renewable capacity under development. That's nearly as large as the company's existing capacity. Moreover, 95% of Brookfield's cash flows are contracted, making them resilient to downturns.
Contractual cash flows, big development projects, and regular acquisitions along the way are expected power up Brookfield's cash flows by 6%-11% annually in the coming years and support 5%- 9% annual dividend increases. Factor in Brookfield's 3.3% dividend yield and you have a dividend stock that's fully capable of supporting that yield through higher payouts for years to come.
An oft-overlooked Dividend King
Dover Corp's (DOV 5.68%) incredible dividend track record makes it an attractive stock for income investors. Dover is a Dividend King, or a company that has raised dividends for at least 50 consecutive years. Dover's last dividend raise in August marked its 65th consecutive annual dividend increase, demonstrating the company's commitment to rewarding shareholders.
Dover manufactures products and solutions for diverse industries through five business segments: engineered products, fueling solutions, imaging and identification, pumps and process solutions, and refrigeration and food equipment. These businesses brought in revenues worth $7.1 billion in 2019. Dover is also using automation to its advantage through technologies like artificial intelligence and the Internet of Things. Dover's diversified portfolio has helped it generate abundant cash flows over the years to support rising dividends.
Dover's line of business may not be the fast-growing type, but the company has efficiently converted earnings into free cash flow to comfortably cover dividends. For example, Dover's free cash flow was 11.5% of revenue and exceeded its net income during the nine months through Sept. 30. Because a company pays out dividends from free cash flow, Dover's financial standing passes three crucial dividend tests: reliability, stability, and growth. When compared to rival industrial conglomerate and Dividend King Emerson Electric (EMR -0.01%), Dover's dividends have grown at a much faster pace, which is one reason its stock performance has more than made up for a low yield of 1.7%.
EMR Dividend data by YCharts
Even in an exceptionally challenging year like 2020, Dover expects its full-year earnings per share to be only marginally lower from 2019. With a dividend payout of only around 30%, there's plenty of room for Dover's dividends to grow.
