The No. 1 objective for a dividend growth investor is to construct a portfolio that consistently pays you more and more passive income in each successive year you own it. The appeal of this investing strategy is that it can help to protect the purchasing power of your dividend income against inflation.
Here are two dividend stocks that each have more than a decade of dividend growth under their belts to contemplate purchasing for a dividend growth-oriented portfolio.
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1. Starbucks: A wildly popular franchise with a flourishing rewards program
Starbucks' (SBUX 0.57%) nearly 37,000 stores have become embedded into the daily routines of millions of people around the world. The factors behind this immense accomplishment aren't too complicated. For one, coffee and cold beverages are in high demand worldwide. And Starbucks' commitment to sourcing the highest-quality ingredients is recognized and appreciated by its customers.
Finally, the company's dedication to customer service fosters a cozy environment for customers as they go about their day. This is an especially important differentiating factor since 76% of consumers indicated that they prefer experiences over material possessions in a recent survey.
It's factors like these that helped Starbucks grow its dividend by over 400% in the past 10 years. And strong dividend growth looks like it can persist. The company's double-digit growth in the Starbucks rewards program helped it to top 30 million active members in the U.S. as of April 2. As these members spend more money, more frequently, at stores, analysts think the company's non-GAAP (adjusted) diluted earnings per share (EPS) will grow by 16.3% annually over the next five years.
Along with a dividend payout ratio that will come in below 62% for the fiscal year ending in September, the dividend is well-covered. Income investors can scoop up Starbucks' 2.1% dividend yield at a forward price-to-earnings (P/E) ratio of 24.6, which is in line with the restaurant industry average forward P/E ratio of 25.
2. Philip Morris International: Poised to own the future of its industry
Philip Morris International (PM 0.20%) is probably best known for owning the world's top-selling cigarette brand, Marlboro. But that isn't the only well-established brand for which the company is recognized.
Sensing that it would need to pivot away from cigarettes if it wanted to survive for decades to come, the company launched the reduced-risk nicotine product Iqos in Japan and Italy in 2014. The brand has gone on to become a hit, with 27.2 million users as of the second quarter of 2023 -- up 14.8% over the year-ago period alone. As more smokers transition away from cigarettes, the more profitable Iqos should become a greater proportion of Philip Morris International's sales mix. That is why analysts believe the company's adjusted diluted EPS will rise by 7% annually for the next five years.
This high growth potential should allow Philip Morris International to build on its track record of 176.1% cumulative dividend growth since becoming a public company in 2008. That is especially the case when considering that the dividend payout ratio will be just 74% in the next 12 months.
Dividend growth investors can buy shares of Philip Morris International and its generous 5.2% yield at a forward P/E ratio of 14.4. For context, that is below the tobacco industry average forward P/E ratio of 15.5.
