Some of the best dividend stocks don't have the best yields -- yet. And that's because their businesses are still experiencing some strong growth and they have to set some cash aside to help fund those growth opportunities.
Even though their yields may not be terribly high, three dividend stocks that can make for excellent long-term dividend plays are UnitedHealth Group (UNH -1.34%), Visa (V +0.81%), and Costco Wholesale (COST +0.60%). Here's a closer look at their dividend streaks and why their payouts could continue rising for years to come.
UnitedHealth Group: 14 years
Health insurance giant UnitedHealth Group increased its dividend in 2023 for the 14th straight year. What was notable about its dividend increase was the size: 14%. While many dividend stocks make modest increases to their payouts, UnitedHealth has been aggressive with its rate hikes. The current quarterly dividend of $1.88 is more than double the $0.90 it was paying its shareholders just five years ago.
NYSE: UNH
Key Data Points
UnitedHealth's dividend yield of 1.5% is in line with the S&P 500 average but it would be much higher if not for the stock's impressive gains; in 10 years, UnitedHealth shares have risen by more than 600%.
The company recently wrapped up another strong year; 2023 revenue rose 15% year over year to $371.6 billion. Operating cash flow was also a monstrous $29.1 billion, nearly $3 billion higher than what the company brought in a year earlier.
UnitedHealth's strong industry position coupled with a rising senior population in the U.S. ensures there is plenty more growth on the horizon for the company, which bodes well for dividend investors as well, as that is likely to result in better earnings numbers and higher dividend payments.
Visa: 15 years
Credit card giant Visa is a low-yielding stock with a payout of only 0.8%. But what's promising about the stock as a potential income investment is the stability it offers. Credit cards are in use regardless of economic cycles. In challenging conditions, people may use them heavily to make ends meet. In good times, consumers may still be using credit cards to collect points and benefit from the varied perks that they offer.
NYSE: V
Key Data Points
Visa just reported numbers for the first quarter of its fiscal 2024 (ended Dec. 31, 2023), and net revenue rose 9% year-over-year to $8.6 billion. Net income jumped an even higher 17% to $4.9 billion. The business looks to be in fine shape, even amid inflation and as consumers tighten up their spending.
As the economy grows, credit card spending is likely to pick up on Visa's network. Being a leader in the industry, the company is in an excellent position to get even larger and more valuable in the years ahead.
The stock's 10-year returns are around 400% and the company has been raising its dividend since 2009. With a modest payout ratio of just 22%, this makes for an excellent dividend growth stock to buy and hold for years.
Costco Wholesale: 19 years
Big-box retailer Costco has been increasing its dividend for nearly two decades. Although its yield looks underwhelming at 0.6%, that doesn't tell the whole story. A big reason the yield isn't higher is, like the other stocks on this list, it has been such a phenomenal investment; over the past decade, the stock is up 500%.
NASDAQ: COST
Key Data Points
Those are some mouthwatering returns, which more than make up for a low dividend yield. And Costco has also paid special dividends multiple times over the years. It recently paid a special dividend of $15 per share -- that's more than 3 times its annual dividend of $4.08.
Costco has generated more than $6.5 billion in profit over the trailing 12 months on revenue of $245.7 billion. Although those make for a fairly lean (2.7%) margin, this business has proven it knows what it's doing, carefully calculating which markets to go into and which products to sell.
The company has achieved significant growth in just the past few years; in fiscal 2023, which ended on Sept. 3, 2023, the company's top line totaled $242.3 billion. That has increased by more than 45% in just three years.
Costco's versatile and robust business makes this a solid stock to own for the long term, and it's also an underrated dividend investment.
