As the Internal Revenue Service processes more tax returns in the weeks ahead, millions of Americans will receive tax refunds. Depending upon your financial circumstances, it may make sense for you to invest your tax refund.
If you have an adequate emergency fund and your debt is fixed at lower interest rates, buying stocks could be a smart move to build your wealth in the years ahead. Here are two dividend growth stocks that investors should consider adding to their portfolios.
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1. Humana: A leader in an industry with an encouraging outlook
The only truly predictable thing about life is that it is unpredictable. It often isn't a matter of whether illness or injury will strike, but a question of when it will occur in our lives. Aside from having an ample emergency fund, another necessity to protect from this uncertainty is to have health insurance. That's because a health insurance policy can limit your out-of-pocket financial costs in such an event.
With a $66 billion market capitalization, Humana (HUM +0.64%) is the fifth-biggest company in the business of assuming its members' medical risks in exchange for monthly premiums. As more people around the world develop chronic medical conditions and medical treatment costs rise, demand for health insurance should only grow. This is why market research firm Straits Research anticipates the global health insurance market will grow from $2.3 trillion in 2021 to $5.3 trillion by 2030.
NYSE: HUM
Key Data Points
As a result, analysts believe that Humana's non-GAAP (adjusted) diluted earnings per share (EPS) will increase by 14.3% annually over the next five years. For context, that is better than the healthcare plans industry average annual earnings growth outlook of 12.7%.
Against the S&P 500 index's 1.7% dividend yield, Humana's 0.7% yield won't blow income investors away. But with the dividend payout ratio set to come in around 12% in 2023, the company is poised to deliver outsized payout growth moving forward.
Dividend growth investors can scoop up shares of Humana at a forward price-to-earnings (P/E) ratio of 16.2. That isn't unreasonably above the healthcare plans industry average of 13.7, which is why dividend growth investors may be wise to buy it for their portfolios.
2. Domino's Pizza: King of the pizza chain industry
With over 5 billion pizzas sold around the world each year, pizza is one of the most universally loved foods on the planet. And with nearly 20,000 stores around the world as of Jan. 1, nobody sells as many pizzas as Domino's Pizza (DPZ +2.67%).
Because of pizza's mind-boggling popularity, the company projects that it can grow its global retail sales at a 6% to 10% annual rate over the next two to three years. Domino's is confident that this can be accomplished by continuing to open hundreds of new stores each quarter throughout the world. That's why analysts believe the company's earnings could grow by 11.5% annually over the next five years.
NASDAQ: DPZ
Key Data Points
Domino's serves up a 1.5% dividend yield to its shareholders. And when considering that the dividend payout ratio should clock in at around 37% for the current fiscal year, strong dividend growth could lie ahead for the company.
Dividend growth investors can pick up shares of the stock at a forward P/E ratio of 22.2. Given that this is moderately less than the restaurants industry average of 24.7, this is an attractive valuation in my opinion.
