It's often said that death and taxes are the only two certainties of life.
Well, there are plenty of near certainties too. Arguably, the most important one for investors and consumers is that the purchasing power of the U.S. dollar will steadily decline over time. Since 2013 alone, the dollar has lost more than 23% of its value. That means it would take nearly $131 today to match the purchasing power of $100 just 10 years ago. So what is an investor to do to contend with rising bills?
One answer could be to purchase quality dividend growth stocks. This is because the businesses underlying these stocks become more profitable over time. Here are two dividend growth stocks whose quarterly dividends per share have tripled or quadrupled in the past decade.
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1. Hormel: Necessity plus brand power equals payout growth
The fact that food is critical to survival makes the consumer staples sector a haven for more conservative investors. Hormel Foods (HRL 0.14%) sells packaged foods in over 80 countries, and its products are regularly consumed by millions of people every day. The company's portfolio consists of 40 brands that enjoy leading positions (i.e., No. 1 or No. 2 market share) in their respective categories, including Jennie-O turkey, Spam canned pork, and Skippy peanut butter.
Hormel's brand prowess is precisely what has supported its 57-year dividend growth streak, which makes it a Dividend King. In the last 10 years alone, the company's quarterly dividend per share has soared by 224% to the current rate of $0.275.
Looking forward, dividend growth should remain healthy. This is because, for one thing, analysts predict that the company's non-GAAP (adjusted) diluted earnings per share (EPS) will grow at a mid-single-digit rate annually over the next five years. Secondly, Hormel's dividend payout ratio is positioned to clock in around a manageable 63% for the fiscal year ending in November 2023.
The stock's forward price-to-earnings (P/E) ratio of 21.8 is significantly above the packaged foods industry average of 16.4. But given Hormel's quality, this valuation might be justified for income investors seeking the stock's 2.7% yield, which beats the 1.6% yield of the S&P 500 index.
2. Ross Stores: Selling bargains to consumers is lucrative
Berkshire Hathaway's Warren Buffett is known for many pithy quotes, including, "Price is what you pay. Value is what you get." This applies as much to shopping as it does to investing. And you get a ton of value for your money when you shop at apparel retailer Ross Stores (ROST 1.10%).
This is because the company keeps its cost of goods sold low by using its buying power with suppliers to get the best deal for its merchandise. It also keeps overhead low by having no decorations or mannequins in its stores. Ross Stores passes savings on to its customers, and compelling prices on its products bring tons of shoppers in the door every day.
That is why Ross Stores' quarterly dividend per share has rocketed higher by 294.1% in the past 10 years to the current rate of $0.335. Analysts anticipate the company's earnings will compound by 10.1% annually through the next five years. With that expectation and a low dividend payout ratio in view, I believe dividend growth should remain respectable.
Dividend growth investors can pick up shares of Ross Stores and its 1.2% dividend yield at a forward P/E ratio of 19.9. For context, that is almost in line with the apparel retail industry average of 18.7.
