What is one of the most reliable metrics of assessing how friendly a company is toward its shareholders? Some investors may think share repurchases, while others may argue dividend hikes. Oftentimes, the best companies pull off a balance between the two. But for my money, I am a big believer in the latter.
This is because I personally enjoy reallocating the dividends that I receive from my investment holdings to buy even greater ownership in world-class businesses. If your investment approach is like mine, here are two remarkable dividend growth stocks that you would be wise to seriously consider adding to your portfolio.
Image source: Getty Images.
1. TJX Companies: Capitalizing on a universal truth
Regardless of upbringing, economic class, religion, or any other social factors, there are many things that unite us -- and one of them is wanting a good deal. After all, nobody wants to pay more than they must for goods or services. From its inception, TJX Companies (TJX 0.29%) realized this and has built its business model around this fact and grown to a market capitalization of $90 billion.
The company's buying agents scour more than 20,000 vendors across the globe for in-demand apparel and home products. Because these vendors don't want to lose a buyer of TJX's size and scope, the retailer can scoop up these goods on the cheap. This is how the company can then sell its products at affordable prices and still make a healthy profit.
With a presence just shy of 5,000 stores in its current markets, you'd think there wouldn't be much room for growth left in the future. But TJX believes that these markets can support more than 6,000 stores because of the strong demand for affordably priced apparel and home goods merchandise.
Without even considering gradual expansion into new markets, analysts project that the company's non-GAAP (adjusted) diluted earnings per share (EPS) could rise by 11.3% annually over the next five years.
TJX's quarterly dividend per share has soared from $0.0725 (adjusted for a 2:1 stock split) in 2013 to $0.3325 today. And if that wasn't enough, TJX's 1.7% dividend yield is slightly more appealing to income investors than the S&P 500 index's 1.6% yield.
Dividend growth investors can snatch up TJX and its above-average income and payout growth prospects at a forward price-to-earnings ratio of 19.8. Given the winning characteristics of the company, I am confident that its valuation premium over the apparel retail industry average of 17.4 is justified.
2. Hershey: Brands that are widely loved
Food is key to the survival of humans. And sometimes, we all crave a sugary or salty snack. If you ever find yourself in that situation, there's a good chance you may have consumed a product sold by The Hershey Company (HSY -0.02%). Thanks to its brands, including Reese's Peanut Butter Cups, SkinnyPop popcorn, and Kit Kat, Hershey boasts the No. 1 U.S. market share in the chocolate category and the No. 2 U.S. spot in snacking.
As the company completes bolt-on acquisitions to strengthen its business, analysts anticipate that its adjusted diluted EPS will compound by 9.4% each year through the next five years.
Hershey's 1.6% dividend yield isn't flashy. But its near double-digit annual earnings-growth potential coupled with a dividend payout ratio that will come in around 46% this fiscal year should bode well for future payout growth. That's why I am optimistic that Hershey could come close to matching its almost 150% dividend growth in the past 10 years over the next decade.
Topping it off, the stock's forward P/E ratio of 25 is just a touch above the confectioner industry average of 23. That arguably makes the stock a compelling pick for dividend growth investors right now.
