One of the most reliable ways to preserve and grow your capital in the stock market is to invest in dividend-growth stocks. These are companies that have a proven history of increasing their cash payouts to shareholders year after year, demonstrating their financial strength, their competent management, and their competitive edge in their industry.
Dividend growers aren't a monolith, however. A small minority truly stands out from the pack in terms of their dividend growth rate and long-term financial outlook. Here are two of the best dividend growth stocks worth buying hand over fist in February and beyond.
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A leading logistics player with a scorching dividend growth rate
FedEx (FDX 0.12%) is one of the leading players in the logistics industry. However, it is facing some major headwinds due to lower demand for its shipping services. The company is taking proactive measures to improve its profitability by reducing its expenses, even as its revenue declines.
This is not an unusual situation for logistics companies in general, which tend to be cyclical and sensitive to macroeconomic conditions. What matters more for investors is FedEx's track record as a reliable dividend payer.
FedEx has increased its cash dividend to its shareholders at a blistering rate of 24.5% per year on average over the last 10 years. Furthermore, its meager payout ratio of 28.9% indicates that the company has enough financial flexibility to cope with economic shocks to its business model without compromising its dividend growth policy.
In addition, FedEx's stock offers a decent 2.08% annualized yield and trades at a reasonable 10.9 times forward earnings. Therefore, while this logistics giant is experiencing some temporary headwinds, its fundamentals are solid, it has a strong competitive position in a growing industry, and its business will eventually recover.
This tech giant isn't just a growth play
Microsoft (MSFT 1.82%) is a leader in the artificial intelligence (AI) field, thanks to its Azure cloud computing platform that offers various AI solutions. This hybrid cloud computing platform has been a major driver of Microsoft's stock performance, which has soared by almost 60% in the last 12 months. Although some analysts believe that Microsoft's valuation is reaching fair value territory, the company's stellar dividend growth policy should help boost returns for shareholders over the long haul.
Microsoft has increased its dividend payments to shareholders by an impressive 10.3% compound annual growth rate in the past 10 years, which is one of the highest among its large-cap tech peers. Moreover, the company has an exceptionally low payout ratio of 25.2%, a strong revenue growth rate, and an overwhelmingly dominant position in several high-growth markets.
These factors suggest that Microsoft will indeed be able to sustain its top-flight dividend growth for years to come. While the company's current yield of 0.73% isn't all that eye-catching for a mature large cap, and its forward price-to-earnings ratio of 36.1 is on the high side, this is a dividend growth stock that offers quality, reliability, and stability. So, for dividend growth investors, Microsoft stock arguably scans as a no-brainer buy.
