Investing in dividend stocks that regularly hike their payouts is a popular strategy to earn reliable income during retirement years.
Via this approach, you look for companies that are stable, have strong recurring revenues, and a history of rewarding long-term investors. Companies that grow their dividends also offer a good hedge against inflation.
In the current environment, when prices are soaring and your purchasing power is declining, you need to find stocks that provide regular pay raises in the shape of dividends to protect or even boost your spending power.
Below, we've put together a list of three dividend stocks that can be trusted to provide steadily growing income. Their dividend yields are, no doubt, low at this point, as their share prices rose during the past year, but each is a low-risk, high-quality name, suitable for a conservative retirement portfolio.
- 5-Year Average Dividend Growth: 22%
- Dividend Yield: 1.6%
- Payout Ratio: 43%
The home-improvement giant Home Depot (NYSE:HD) has proven to be one of the best dividend-growth stocks for income investors. The retailer has been experiencing powerful growth since the pandemic outbreak, which prompted stay-at-home workers to spend more money to renovate their homes.
This trend is likely to continue as many companies look for a hybrid work model, which will allow more workers to remain flexible and work from home at least part of the time. This, combined with low interest rates and the massive savings that Americans have accumulated during the pandemic, point to continued gains for home improvement stocks.
That latest sign of this continued strength came last month when Atlanta-based HD released yet another strong earnings report. Comparable-store sales, a key metric for retailers, increased 6.1% in the third quarter, well above the 1.5% average estimate of analysts.
HD currently pays $1.65 a share quarterly dividend, which has grown, on average, 22% each year during the past five years. That kind of escalation will likely continue. The company has a sustainable, low, 43% payout ratio, leaving plenty of room for the retailer to distribute more cash to shareholders.
- 5-Year Average Dividend Growth: 11.3%
- Dividend Yield: 0.72%
- Payout Ratio: 28.7%
Another US company that ticks all the boxes when it comes to retirement investing is the sportswear giant Nike (NYSE:NKE). Its average dividend growth over the past five years has been more than 11%.
With a low payout ratio of just under 30%, along with the stock's current earnings momentum, the Oregon-based consumer apparel and footwear giant clearly has much more capacity to hike its dividend.
The stock currently pays a dividend of $0.305 per share on a quarterly basis, which at the current share price of $172.29, translates to an annual dividend yield of just under 1%.
That may sound meager to many dividend conscious investors, but yield percentage doesn't convey the full story regarding why this is a smart dividend play for buy-and-hold portfolios.
The best dividend stocks are the ones whose payouts are raised regularly without negative surprises. Nike has hiked its payout for 20 consecutive years, showing the company has cash-generating capabilities no matter what stage the domestic, or global, economic cycle is in.
Along with dividend stability, Nike constantly innovates, in order to fuel additional growth across its business lines.
During the pandemic, when many top retailers were forced to suspend their dividends, Nike proved that its business could not just survive, but could quickly adapt to new market conditions. For example, the company pivoted to more robust on-line sales when its global bricks-and-mortar outlets were closed due to lockdowns.
- 5-Year Average Dividend Growth: 21%
- Dividend Yield: 1.29%
- Payout Ratio: 33%
The world’s biggest health insurer, UnitedHealth Group (NYSE:UNH) offers another solid avenue for income investors.
Backed by the company’s strong cash generation, investors have been getting massive dividend hikes during the past five years. The company pays a quarterly dividend of $1.45. Annually, that payout has increased more than 21% during the past five years.
With consistent dividend raises, UNH stock has also provided impressive capital growth since the outbreak of the pandemic. Trading at a record high, shares have gained more than 65% during the past two years, helped by dampened demand for elective healthcare procedures during the COVID-19 pandemic.
UnitedHealth, which operates a health insurance business and the Optum medical care services unit, is offering income investors an option to hold a reliable healthcare name even as the business makes a boatload of cash each year.
According to the company’s latest guidance released last week, UnitedHealth expects to make $320 billion in sales in fiscal 2022, with cash flows from operations expected to range from $23 billion to $24 billion.
For this year, UnitedHealth said revenues are expected to be “approximately $287 billion, with net earnings of $17.80 to $17.95 per share and adjusted net earnings of $18.75 to $18.90 per share.”