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Proprietary Data Insights Top Dividend-Paying Stock Searches This Month
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What Are Dividend Growth Stocks With Examples?
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When we think about growth in relation to stocks, we tend to think about a company growing sales and profits. However, while still important in relation to dividend stocks, the word “growth” in dividend growth stock refers to the actual dividend, not necessarily revenue and earnings. Does a company increase its dividend annually? That’s the specific question to ask. Three of the five stocks in today’s Trackstar top five of the dividend-paying stocks investors are searching for most have consecutive years track records of annual dividend increases. But two don’t. While Nvidia (NVDA) and Micron Technology (MU) pay (relatively modest) dividends, they’re not dividend growth stocks. Let’s consider this. On Thursday, our sister newsletter, The Spill, rated MU stock, noting— The company recently reported results exceeding expectations, with revenue of $6.81 billion, up 17% sequentially and 82% year-over-year. This was driven by high demand for AI-related products, particularly in the data center segment, where revenue grew by over 50% sequentially. Management also forecasted record revenues to continue as AI demand showed no signs of slowing. So, clearly, Micron with revenue increasing nicely, is a growth stock. However, one look at Micron’s dividend history (easily accessible from various sources just by searching “Micron dividend history”) shows a stagnant dividend payment over the last few years. Pretty much the same story at Nvidia. This doesn’t necessarily make either stock a universal buy or sell. Many factors contribute to this decision. It’s just that if your primary aim is a growing dividend — to generate consistent income and take full advantage of dividend reinvestment over time — you’re probably better off looking elsewhere. Realizing in the process that if you opt for another name, you might — though not always — be sacrificing revenue growth and, sometimes (though not always) share price appreciation. It’s really a case-by-case thing that depends on a mix of factors at the company, associated with your near and long-term goals. The remaining three Trackstar stocks have long track records of annual dividend increases:
Consider Apple. Let’s say you bought 100 shares of AAPL at the beginning of 2024. You paid $186 per share, so your 100 shares would have been worth $18,600. At the time Apple was paying a $0.24 quarterly, or $0.96 annual dividend. You could do the math and say, cool, I can expect to receive $96 in dividend income over the course of a year from Apple. And you’d be close, but not quite right. Because you left out two key factors of dividend growth investing:
When you receive a dividend, you can have your brokerage reinvest it into new shares of the stock. If you did this with Apple, you would have reinvested the February 12, 2024 dividend of $0.24 ($24 in cash), thereby increasing your position size from 100 shares to slightly over 100 shares because that $24 would have purchased fractional shares of AAPL. Apple’s next dividend payment – which was payable on May 16, 2024 – was for $0.25. It went up. Because Apple went ahead with a dividend increase of $0.01 quarterly, or $0.04 annually. So now, instead of getting paid a dividend on 100 shares, you’re getting it on that slightly higher position size. And, instead of a $24 payment on 100 (and a fraction) worth of shares that quarter, you received a dividend payment of just over $25 to reinvest. With AAPL trading around $228, your original 100 shares are now worth $22,800 before factoring in the dividend payments. But, you can see how those little dividend reinvestments add up over time, increasing your position size and, subsequently, the size of your dividend payment. Factor in increases to the size of the dividend yourself and these factors work together to help you realize the benefits of dividend growth over time. We use AAPL because it’s a popular stock and, almost without doubt, will continue to increase its dividend for the foreseeable future. Rinse and repeat this quarter after quarter and before you know it you have meaningfully increased your Apple holding simply by reinvesting dividends. So, in this context, dividend growth, if coupled with dividend reinvestment, can increase your cash dividend payout each quarter and position size, leading to – all else equal – increased income generation.
The Bottom Line: Just because Apple, Microsoft and Nike have impressive dividend increase streaks going doesn’t mean this will always be the case. If you owned shares of Disney (DIS) or AT&T (T), once considered dividend growth stalwarts, you know what we’re talking about. Companies cut, halt and even eliminate dividend payments all of the time. That said, some companies – and The Juice is pretty confident that Apple, Microsoft and Nike are good examples going forward – never disappoint, at least not with dividend increases. That said, this doesn’t make them better investments on the basis of the dividend alone. None of these names can top NVDA’s 145% stock price surge so far this year. |
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