Want to generate steady cash flow from your stock portfolio while having the potential to outperform the stock market? Some dividend growth stocks fulfill both of those requirements.
A rising dividend is a great indicator that a company is growing. Companies can only distribute dividends if they are profitable, and dividends only go up if net income rises at a faster rate than the dividend growth rate. Net income can only continue to grow in the long run if a corporation continues to generate higher revenue.
Even though dividend growth stocks often have sound business models, these companies are susceptible to pullbacks and corrections, just like any stock. These events result in higher yields and give investors the opportunity to accumulate more shares at a discount.
Wondering which dividend growth stocks are among the best choices in August? These are some of the top picks to consider for long-term investors.
Meta Platforms (META)
Meta Platforms (NASDAQ:META) only recently began to distribute dividends, but it looks like a solid dividend growth stock. The company has enough cash and rising profits to support a double-digit growth rate for several years. The social media giant has 3.27 billion daily active users across its platforms. That figure is up by 7% year-over-year (YOY), and that wasn’t the only thing up for the firm.
Revenue increased by 22% YOY while net income jumped by 73% YOY. Meta Platforms continues to enhance its efficiency while delivering impressive net income growth. Headcount was only down by 1% YOY, indicating that Meta Platforms is generating higher profits while retaining most of its workforce. Also, the company had enough cash left over to initiate a $6.32 billion stock buyback. Dividends came to $1.27 billion.
Artificial intelligence (AI) is contributing to elevated revenue and net income growth. The company is positioned to make more AI investments due to its strong financials and $58.08 billion in cash.
Texas Roadhouse (TXRH)
Texas Roadhouse (NASDAQ:TXRH) is a steakhouse chain that has been outperforming the stock market. Shares are up by 39% year-to-date (YTD) and have almost tripled over the past five years. The company has a 33.5 P/E ratio and regularly delivers double-digit growth rates for revenue and net income.
The steakhouse chain continued that trend with Q2 of fiscal year 2024 results. Revenue increased by 14.5% YOY while net income jumped by 46.0% YOY. Comparable sales in the company’s restaurants increased by 9.3% YOY while franchises had an 8.3% YOY growth rate in comparable sales.
Rising comparable sales suggest that people are eating at Texas Roadhouse and regularly revisiting its restaurants. It’s also been a boon for the dividend. Texas Roadhouse stock currently has a 1.47% yield, and the company has maintained a double-digit dividend growth rate for several years. The stock is rated as a moderate buy and has a projected 6% upside from current levels.
Microsoft (MSFT)
Over the past few years in the stock market, the winners have been expanding their market share. Giant tech companies continue to drive indices higher and grow investors’ portfolios. Microsoft (NASDAQ:MSFT) is one of those stocks. It has a $3 trillion valuation and has delivered a 10% YTD gain. Shares have roughly tripled over the past five years.
Recently, Microsoft reported Q4 FY24 earnings which revealed respectable growth numbers. Revenue increased by 15% YOY while net income was up by 10% YOY. These numbers are lower than the previous quarter’s growth rates, but double-digit growth rates are still solid.
Microsoft Cloud was a major catalyst for the strong quarter. Revenue increased by 21% YOY to reach $36.8 billion. That was almost 60% of the tech giant’s total revenue. Microsoft is focused on leading the AI era which should result in more gains for long-term investors. The AI industry is projected to maintain a 36.6% compounded annual growth rate from now until 2030.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is another AI leader. Its AI chips are gaining momentum and can benefit from a potential OpenAI partnership. Broadcom’s AI offering generated $3.1 billion in the second quarter of fiscal 2024. That’s a new high, and it helped the company increase revenue by 43% YOY. The high revenue growth comes amid VMware’s impact on the company’s financials. Excluding VMware, Broadcom reported 12% YOY revenue growth.
The tech giant has outperformed the stock market for many years. Shares are up by 33% YTD and have gained more than 400% over the past five years. Currently, AVGO offers a 1.46% yield and has maintained a double-digit dividend growth rate for several years. The firm raised its dividend by 14% in 2023 to a quarterly payout of $5.25 per share. Broadcom is in the middle of a correction and has fallen by more than 20% from its peak. The dip may present a buying opportunity.
American Express (AXP)
When you make a purchase with a credit or debit card, the company issuing the card makes a small percentage of the transaction. That’s been American Express’ (NYSE:AXP) business model for decades. It’s also been a winning formula for investors. Shares are up by 23% YTD and have rallied by 87% over the past five years.
Although the company has logged impressive gains, it still trades at a reasonable 17 P/E ratio. That’s much lower than the other credit and debit card stocks, even though American Express has been reporting better financials than most of its competitors. The fintech firm delivered 9% YOY revenue growth and 39% YOY net income growth in the second quarter.
The successful quarter prompted American Express’ leadership to raise its annual EPS guidance. AXP remains on pace for 9% to 11% YOY revenue growth in 2024. High net income growth brought the company’s net profit margin above 20% and should support a double-digit dividend growth rate for several years.
Walmart (WMT)
Walmart (NYSE:WMT) has recently re-established itself as a dividend growth stock. The company delivered 6.0% YOY revenue growth and 22.4% YOY adjusted EPS growth in the first quarter of fiscal 2025. E-commerce and global advertising revenue both increased by more than 20% YOY.
The global retailer has been posting successful quarters that demonstrate profit margins are expanding. Those successes led to a 9% dividend hike, the highest dividend hike for the retailer in more than a decade. Investors shouldn’t expect Walmart to return to annualized double-digit dividend growth. However, it may be able to deliver dividend growth in the mid to high single-digits.
Walmart can thrive during economic booms, and it can also do well during contractions. The retailer has established itself as the top place for affordable products and services. It’s also the world’s leading grocer. The company’s business model can help it navigate many economic cycles while delivering dividends and gains for patient investors.
Cintas (CTAS)
Cintas (NASDAQ:CTAS) offers business supplies and safety equipment for more than one million businesses in North America. While the company operates behind the scenes for many organizations, its returns have helped it shine in the stock market. Shares are up by 28% YTD and have almost tripled over the past five years.
Although Cintas only has an 0.82% yield, the company makes up for it with an impressive dividend growth rate. Cintas has maintained an annualized dividend growth rate of 21.37% over the past five years. That includes a 15.6% dividend hike earlier this year. Cintas now pays out a quarterly dividend of $1.56 per share.
The company delivered 8.2% YOY revenue growth in Q4 FY24. Net income grew by 19.7% YOY in the quarter, resulting in a 16.8% net profit margin. Cintas expects diluted EPS to range from $16.25 to $16.75 in fiscal 2025. The midpoint represents a 9% YOY increase compared to the $15.15 diluted EPS in fiscal 2024.
On this date of publication, Marc Guberti held long positions in TXRH, MSFT, and AVGO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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