Investing in dividend growth stocks is one of the best ways to build wealth. What today might be generating 2% in dividend income on your investment could, a decade from now, be bringing in far more. As long as you're comfortable with just buying and holding onto an investment, dividend growth stocks can provide you with some excellent long-term cash flow.
Dividend Aristocrats are stocks with impressive track records for not just paying but also increasing their payouts over the years. And three of the most impressive stocks from that group are Medtronic (MDT +0.25%), RPM International (RPM 0.91%), and Walmart (WMT +0.71%).
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1. Medtronic
Medical-device maker Medtronic pays its shareholders a dividend yield of 2%, which is better than the S&P 500 average of less than 1.3%. Although that may seem like a modest amount (there is no shortage of higher-yielding stocks out there), long-term investors are earning much more than that on their initial investments. Medtronic has been increasing dividend payments for 44 years in a row.
This year, the company's board approved a 9% rate hike. At $0.63, the current dividend is 47% higher than the $0.43 the company was paying only five years ago -- averaging out to a compound annual growth rate of just under 8%.
There's little to worry about regarding future increases as the company projects revenue will grow organically at 9% for fiscal 2022 and its diluted per-share earnings will come in between $5.65 to $5.75 -- more than twice its annual dividend of $2.52.
Medtronic is seeing a strong recovery from the pandemic as more patients are taking on elective procedures. Thus, in the latest quarter, such top segments as neuroscience and medical surgical grew at the impressive rates of 26% and 25%, respectively.
Medtronic looks good as a recovery stock and makes for an even better investment that you can just buy and forget about.
2. RPM International
RPM International makes a variety of coats, sealants, and building materials that can be used at home and in large construction projects. Its products are necessities -- and that makes the overall business a fairly stable buy. Over the past five years, the company has consistently delivered profits (albeit, with modest margins typically at 8% or less of revenue).
That consistency is important for a dividend growth stock. And this past month, RPM announced it will raise its dividend more than 5% to $0.40 per quarter, giving investors a 1.9% yield. This marks the 48th consecutive year that RPM has raised its payout. And over just the past five years, it has increased the dividend by 33%, averaging a compound annual growth rate (CAGR) of around 6% during that time.
The company notes some challenging conditions ahead due to raw materials shortages and wage inflation. In fact, in its latest quarter ended August 31, net income of $134.6 million was down 25% year over year due to a challenging comparable to 2020 when the company says it saw "unprecedented demand for its home improvement products."
But even with the decline, its earnings per share of $1.04 are more than double the size of its quarterly dividend. Although in the short term RPM may report some softer numbers, the business is still a sound one to invest in for the long haul.
3. Walmart
Big-box retailer Walmart is another solid, safe investment you can buy and not have to worry over. Its business is essential for millions of people around the world -- and it proved that during the pandemic when it delivered fantastic results. For the four quarters ended last January, sales rose by 6.7% to $559 billion. That may seem modest, but for a large company like Walmart, it's a significant increase. In the previous year, its top line rose by just 1.9%.
Even now, with businesses opening back up, consumers still flock to its stores. For the quarter ended July 31, Walmart's revenue grew 2.4% to $141 billion while U.S. comparable store sales rose 5.2%. Plus, its quarterly diluted per-share profit came to $1.52, which is easily enough to cover its quarterly dividend payment of $0.55.
And Walmart is nearly a Dividend King. The company raised its payout by $0.01 this year, marking the 48th straight year it has boosted its dividend. With a 1.5% payout, Walmart may be the lowest-yielding dividend stock among the three here, but it's arguably the safest due to its size and strong position in the retail industry.
