Being invested in the stock market has never been for the fainthearted. And we have certainly been reminded of this reality in 2022, with the S&P 500 index having dropped 23% year to date.

Dividend growth investing is arguably a strategy that has helped many investors navigate the tremendous volatility so far this year with relative ease. That's because there are psychological benefits to owning investments that pay higher dividends year in and year out.

One such stock that has helped investors sleep well at night in 2022 is the largest spice producer in the world, McCormick (MKC -0.82%). Let's take a look at the MKC's fundamentals and valuation to better understand why this Dividend Aristocrat could be a great fit in a portfolio oriented toward dividend growth.

Tremendous brand power

If you're one of the many consumers who enjoy spices or condiments with meals, then McCormick likely has your taste preferences covered.

Do you like hot sauce? The Maryland-based company owns the leading hot sauce brands, Frank's RedHot and Cholula Hot Sauce. Do you like New Orleans-style cuisine? You may appreciate McCormick's Zatarain's offerings. Do you like barbecue sauce? Then you'll probably love the company's Cattlemen's BBQ sauce and/or Stubb's premium BBQ sauce. I could go on, but you get the point. 

McCormick produced $1.6 billion in net sales during its third quarter ended Aug. 31. This equates to a 3% year-over-year growth rate in net sales. 

The company's diverse portfolio of widely used brands gave it the confidence to implement 10% price hikes to offset its higher cost of goods sold stemming from inflation. This calculated move appeared to pay off, which is evidenced by the fact that McCormick's volume and product mix fell just 2%. Consumers largely tolerated these price increases because they prefer products the company sells. 

The sale of McCormick's ready-to-use broths brand, known as Kitchen Basics, led to a 1% decline in net sales for the quarter. Divestitures of a low-margin business in India and the consumer business in Russia also contributed to a 1% decrease in net sales in the quarter. And since McCormick sells its products in 170 countries and territories around the world, the company's net sales were negatively impacted by foreign currency translation to the tune of 3%. These factors explain how McCormick's net sales edged 3% higher during Q3. 

The company recorded $0.69 in non-GAAP (adjusted) diluted earnings per share (EPS) for the quarter, which was down 13.8% over the year-ago period. Higher costs resulted in a 220-basis-point year-over-year decline in net margin to 11.8% in the quarter. That explains why adjusted diluted EPS lagged behind net sales growth during the quarter. 

Analysts anticipate that McCormick's adjusted diluted EPS will compound at 5.1% annually over the next five years. And this may prove to be a rather conservative forecast. As inflation recedes and the company further strengthens its brand portfolio with strategic acquisitions, there's reason to believe that earnings could grow at a faster rate than this forecast. 

The cooking supplies section of a grocery store.

Image source: Getty Images.

The market-beating dividend is well-covered

McCormick's 2% dividend yield is slightly above the S&P 500 index's 1.8% yield. And as a bonus, the company's dividend has the flexibility to grow moving forward. 

This is because McCormick's dividend payout ratio will come in around 55% for its current fiscal year, set to end next month. The company's manageable payout ratio should leave it with enough capital for debt reduction and future growth opportunities. That's why I expect McCormick to build on its 36-year dividend growth streak with high-single-digit dividend growth annually over the next few years. 

A decent entry point

McCormick seems positioned to serve up strong dividend growth to shareholders. And the stock's valuation seals the deal to make it a buy for dividend growth investors.

McCormick's Shiller price-to-earnings (P/E) ratio of 28.6 is moderately below its 10-year median Shiller P/E ratio of 32.2. The Shiller P/E ratio accounts for the variability of corporate earnings over the past 10 years, which is typically a complete economic cycle. With its fundamentals arguably intact, this paints the picture that McCormick is slightly discounted at this time.