There are numerous investing strategies that can make investors richer with enough patience and discipline. But my favorite is undoubtedly dividend growth investing. Even in times of market turbulence, the payouts of world-class dividend stocks tend to move steadily upward over time.
Here are two dividend payers that should keep delivering dividend growth to shareholders in the years ahead. Better yet, both of the stocks currently look to be buys for the long haul.
1. Philip Morris International: The tobacco industry's heavyweight champion
Traditional cigarettes are known throughout most of the world to be harmful, but the obvious caveat is that giving up smoking is an exceptionally difficult task. That's precisely why there is such a huge demand for nicotine alternatives that may be less harmful. And arguably no company has been more receptive to these shifting consumer preferences than Philip Morris International (PM 1.39%), the parent company of Marlboro, the top-selling cigarette brand in the world.
The company's reduced-risk product dubbed Iqos was launched in the pilot markets of Nagoya, Japan, and Milan, Italy, in 2014. Since that time, Iqos has grown to approximately 25 million users. This helped the company generate more than a third of its net revenue in 2022 from smoke-free products. Since Iqos heats tobacco rather than burning it like cigarettes, the claim is that fewer harmful chemicals are inhaled by consumers who use Iqos as opposed to cigarettes.
Analysts think that Philip Morris International's leadership in this growing market category could lead to 6.9% annual earnings growth over the next five years. Income investors will be intrigued to find out that the company's 5% dividend yield is triple the S&P 500 index's 1.7% yield. And with the dividend payout ratio poised to come in around 80% in 2023, this tremendous starting income appears to be secure as well.
Philip Morris International's forward price-to-earnings (P/E) ratio of 16 may not be cheap compared to the tobacco industry average forward P/E ratio of 12.1. But for a company that owns the present and could own the future of the tobacco industry, this valuation is within reason in my opinion.
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2. Dollar General: The growth story isn't over yet
With more than 19,000 locations throughout the U.S., Dollar General (DG 0.30%) is the dominant chain of dollar stores in the country. The company's product offerings include food, self-care and beauty items, cleaning and laundry supplies, and health and wellness products.
There is still plenty of room for thousands more Dollar General store openings within the U.S. But the bigger piece of the company's growth puzzle will be becoming a more indispensable retailer to its customers. Dollar General is focusing on adding higher-value items to its stores, such as basic groceries and healthcare goods. This should further strengthen the value proposition of the company's stores, which is why analysts anticipate that Dollar General will generate 8.7% annual earnings growth through the next five years.
The company's 1.1% dividend yield flies under the radar of most dividend investors. But with the dividend payout ratio positioned to clock in at 21% for the current fiscal year, Dollar General's payout should have significant growth ahead.
Trading at a forward P/E ratio of 17.3, the stock is also cheap compared to the discount stores industry average forward P/E ratio of 22.5. That is what makes Dollar General a compelling buy for dividend growth investors at the current $216 share price.
