Would you like to build a market-beating stock portfolio? There are all kinds of ways to go about it, but none are more reliable than buying dividend-paying stocks. From 1973 through 2021, dividend-paying stocks delivered a 9.6% average annual return compared with just 8.2% for the S&P 500 index as a whole, according to research from Hartford Funds.
The apparent advantage dividend-paying stocks have over the broad market becomes even stronger when we cherry-pick dividend growers. These three companies are committed to distributing a portion of their profits and raising their payouts year after year. These stocks are so good at raising their payouts that the average analyst thinks they can rise sharply in the year ahead.
CVS Health
Shares of CVS Health (CVS +0.49%) have fallen nearly 10% in 2022, but Wall Street analysts expect a strong rebound in 2023. The consensus price target on this healthcare giant is 26% above its recent price, suggesting a market rally in 2023.
NYSE: CVS
Key Data Points
At recent prices, shares of CVS Health offer a nice 2.6% dividend yield. The company's been able to raise its payout by 169% over the past 10 years. This is all the more impressive because it's also paid down more than $25 billion of debt that it took on to pull off a $69 billion merger with Aetna in 2018.
Aetna is a leading U.S. health insurer that collects premiums for around 35 million people. CVS Health is famous for its leading chain of pharmacies, but a leading pharmacy benefit management business has been its main growth driver since 2007. A unique collection of healthcare businesses that can perform well in good economic times and bad makes this a great stock to buy now and hold through 2023 and beyond.
Medical Properties Trust
Medical Properties Trust (MPW +3.41%) is down 15% in 2022. The stock offers a big 10.4% yield at the moment, and analysts think investors rushing in could drive the shares sharply higher in 2023. The consensus target on the stock suggests it can rise a whopping 37% in the year ahead.
NYSE: MPW
Key Data Points
This company is a real estate investment trust (REIT) that owns around 435 hospitals and acute care facilities in the U.S. plus nine other countries. As a REIT, it can avoid paying income taxes by distributing at least 90% of its profits to shareholders as a dividend.
Medical Properties Trust employs net leases that transfer all the variable costs of building ownership like maintenance and taxes to the companies that operate its hospitals. Rent increases built into long-term net lease agreements with dozens of different operators have led to steadily growing cash flows.
At recent prices, this REIT offers a juicy 10.4% yield that could get even bigger. The company raised its payout by about 45% over the past decade. Even the COVID-19 pandemic couldn't disrupt its steady rate of dividend payout bumps.
Ally Financial
Shares of Ally Financial (ALLY 0.03%) have lost around half of their value over the past year. Despite the drop, analysts who follow the all-digital bank think its best days are up ahead. The average price target on the stock suggests it can rise 33% in 2023.
NYSE: ALLY
Key Data Points
Ally Financial is the former finance arm of General Motors, and it still originates a lot of automobile loans. It's also a large consumer bank with around 2.6 million members that's sitting on a whopping $140 billion worth of deposits.
At recent prices, shares of Ally offer a juicy 5% yield that is growing by leaps and bounds. Steady cash flows from a large portfolio of loans allowed the company to raise its dividend payout by 131% over the past five years.
Despite its rapid pace of dividend growth, Ally needed just 17.6% of the free cash flow its operations generated over the past year to meet its dividend commitment. With a well-funded dividend program, the company can continue raising its payout in the years ahead even if higher interest rates cause new auto loan originations to decline. Adding shares of Ally to your portfolio now could lead to heaps of dividend income in the years to come.
