Stocks that have grown their dividends over time typically have a good track record of outperforming other stocks. That's because it is basically impossible for a company to consistently increase its dividend over the long term without also growing its profits.
Here are a couple of steadily growing stocks that are leaders of their industries to consider loading up on in the new year.
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1. TJX Companies: The dominant off-price apparel retailer
With almost 4,700 stores in nine countries -- including the Marshalls, HomeGoods, and T.J. Maxx brands -- TJX Companies (TJX +0.33%) is the biggest apparel retailer in the world. For reference, TJX's $95 billion market capitalization is more than double the $41 billion market cap of the next biggest competitor, Lululemon Athletica.
NYSE: TJX
Key Data Points
TJX's buying agents hunt throughout the year for the most popular brand-name and designer merchandise. And because of the company's massive purchasing power, it is able to scoop up this merchandise for bargain-bin prices. TJX then passes these savings on to consumers without the usual retail frills of coupons and flash sales.
Customers appreciate the treasure hunt experience that the company provides. This explains why analysts anticipate that TJX's earnings will grow 11.9% annually for the next five years. This is moderately above the apparel retail industry's average earnings growth forecast of 10.4%.
The stock's 1.5% dividend yield isn't quite as high as the S&P 500 index's 1.7% yield. But with the dividend payout ratio set to come in under 37% for its fiscal year 2023, which will end later this month, TJX's dividend has ample room to grow. This is why I believe that the company will deliver double-digit dividend hikes each year over the medium term.
Investors can snatch up its shares at a reasonable valuation. The stock's forward price-to-earnings ratio of 23 isn't much higher than the apparel retail industry's average forward P/E ratio of 20.8. This is probably why analysts have an average 12-month price target of $86, which would be 7% upside from the current $81 share price.
2. Dollar General: A company that is (almost) everywhere
As of Oct. 28, Dollar General (DG 1.31%) had more than 18,800 stores in 47 U.S. states. This puts approximately 75% of the U.S. population within five miles of at least one of the company's stores.
As paradoxical as this may sound given its size, Dollar General's best days arguably lie ahead of it. In just the next 12 months alone, the company expects to open more than 1,000 new stores.
NYSE: DG
Key Data Points
Coupled with Dollar General's push to provide basic medical services to geographically remote customers, the company could be on its way to disrupting a sizable U.S. drugstore market. That explains why analysts project that Dollar General's earnings will compound at 11% each year for the next five years -- just shy of double the industry average growth prospects of 6.2%.
The stock's 1% dividend yield may not be flashy. But investors can be confident that the dividend will rapidly grow for the foreseeable future. This is due to the fact that the dividend payout ratio will clock in at about 20% for the fiscal year that will conclude in a few more days.
Like its products, Dollar General's stock currently offers a strong value proposition to investors. Its shares trade at a forward P/E ratio of 19.1, which is well below the discount store industry average forward P/E ratio of 22.4. This is likely why analysts have an average 12-month price target of $267 for the stock, or about 17% higher than its current $227 share price.
