There are numerous ways to pick the most reliable dividend growth stocks for your portfolio. But I would argue that the most effective way to gauge the quality of dividend stocks is to focus on their track record.
A payout can be cut at any time for any reason (e.g., a plunge in profits or change in dividend policy). But this is less likely to be the case when investors pick companies with decades of dividend growth under their belt. Here are three well-established dividend payers I believe could have many more years of dividend growth in their futures.
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1. Lowe's: A leader in a trillion-dollar industry
Homeownership has been the core of the American dream for many decades. And it appears poised to remain prominently featured in that dream in the years ahead, which helps explain how the home improvement retail industry is approaching $1 trillion in annual revenue. With Lowe's (LOW 0.21%) forecast to capture $88.6 billion of that in its current fiscal year, the company is positioned as the clear No. 2 in its industry, behind the $156.4 billion in revenue expected from Home Depot (HD +0.32%) in its current fiscal year.
NYSE: LOW
Key Data Points
Analysts believe Lowe's non-GAAP (adjusted) diluted earnings per share (EPS) will grow by 7.6% annually, which is much higher than the industry's average annual earnings growth outlook of 4.3%. The rationale for this above-average growth profile likely has to do with investments the company is making to close the gap between itself and Home Depot with professional contractors.
Because they generally spend more on both a transaction and frequency basis than do-it-yourself customers, pros are the most lucrative type of customer to Lowe's and Home Depot.
Lowe's has a 2.1% dividend yield, which is meaningfully higher than the S&P 500 index's 1.7% yield. And with the dividend payout ratio positioned to come in around 32% for this fiscal year, the company can build on its 61 consecutive years of dividend growth moving forward. Sealing the deal to make the stock a buy, Lowe's forward price-to-earnings (P/E) ratio of 13.8 is below the industry's average forward P/E ratio of 16.2.
2. Genuine Parts: The longest dividend growth streak in its sector
Owning well-known brands like NAPA and Alliance Automotive Group, Genuine Parts (GPC 1.28%) is a leading automotive and industrial replacement parts retailer. The biggest growth catalyst for the company in the years ahead is the U.S. average vehicle age of 12.2 years.
New vehicles are quite expensive for most people, so keeping their used vehicles running smoothly is a high priority, regardless of the economic environment. Thus, analysts believe the company's earnings will rise by 4.6% each year over the next five years.
NYSE: GPC
Key Data Points
Thanks to the necessity of Genuine Parts' products, the company boasts the lengthiest track record of dividend growth in the consumer goods sector at 67 years. And with the dividend payout ratio set to clock in at approximately 41% in 2023, dividend growth doesn't look like it will be stopping anytime soon. Income investors will also like that the stock's 2.2% dividend yield is significantly more than the broader market.
Despite its illustrious reputation as a dividend grower, Genuine Parts' forward P/E ratio of 17.7 isn't unreasonably higher than the specialty retail industry average forward P/E ratio of 15.6.
3. General Dynamics: A heavyweight in the defense contractor industry
One unfortunate reality of life is that conflict occurs between nation-states. For better or worse, this is why defense contractors like General Dynamics (GD 0.33%) remain in high demand.
NYSE: GD
Key Data Points
Boasting an $89.8 billion backlog as of the first quarter of 2023, the company is firmly among the largest defense contractors on the planet. As you'd expect from a defense contractor juggernaut, General Dynamics is diversified across aerospace, marine systems, combat systems, and technologies segments.
The appeal to this diversification is that General Dynamics is poised to do well, no matter how military spending priorities shift over time. That explains why analysts anticipate that the company's earnings will compound by 8.7% annually through the next five years.
Aside from growing profits, General Dynamics also offers prospective shareholders a market-topping 2.5% dividend yield. And considering that the dividend payout ratio will be around 41% in 2023, the company should extend its 29-year dividend growth streak. Finally, General Dynamics looks to be trading at a bargain. The stock's forward P/E ratio of 14.1 is well below the aerospace and defense industry average forward P/E ratio of 19.9.
