What is the holy grail of dividend investing? Stocks in strong companies that pay out a high dividend yield. The yield can provide a steady source of income every quarter, which will hopefully increase over time. You can even reinvest the dividend back into the company to further bump up your holding. Plus, dividend growth stocks from financially healthy companies can also help you to hedge your risk against more volatile stocks.
So how we can pinpoint these elusive stocks? In this case, I used TipRanks’ innovative stock screener. The screener is a great way to find stocks that match your investing criteria and have significant support from the Street’s best analysts. Here I set the filter for stocks with a “positive,” “high” or “very high” dividend yield and a “strong buy” top analyst consensus rating.
These are the Street’s top analysts according to their success rate and average return. I left the other filters open e.g. sector, market cap, etc. From the list pulled up by the screener, I specifically searched for stocks with big dividend growth and strong potential rather than just the current yield rate.
A stock that pays a high dividend yield is ultimately disappointing in the long-run if the dividend shrinks rather than grows. And a bullish company with an impressive dividend growth rate is a great sign that the dividend will continue to go one way: up.
Bearing that in mind, let’s dive in and take a closer look at these top five stock picks:
Top Dividend Growth Stocks: Starbucks
The creator of the Unicorn Frappuccino, Starbucks Corporation (NASDAQ:SBUX) pays its investors a relatively high dividend yield of 2.11%. At the moment, SBUX is trading ex-dividend until the payout date on Dec. 1, 2017.
This means only investors who have already purchased SBUX shares will receive this 30-cent dividend payout — up 5 cents from the previous payment. Indeed, over the past 10 years, Starbucks displays an encouraging 10-year dividend growth rate of 500%.
Luckily for investors, the stock’s “strong buy” rating suggests that dividends will keep growing. Analysts are optimistic about the growth And now could be a smart time to invest, with shares at $56.8, some ways off the $64.60 seen in June.
Management has just officially reduced guidance with a new long-term EPS growth target of 12%-plus. According to Oppenheimer’s Brian Bittner this was the right move. He says the reduction was widely expected, and the new target sets a more appropriate bar for management.
Wells Fargo’s Bonnie Herzog agrees and recommends buying dips. She says the company’s $15B three-year share repurchase program “signals to the market its commitment to deliver above-industry shareholder returns irrespective of operating headwinds.”
Meanwhile, her $63 price target comes out slightly above the $62.19 average analyst price target. In the past three months, 13 out of 16 analysts have recorded a bullish sentiment on SBUX.
Top Dividend Growth Stock: Lam Research
This top semiconductor stock is one of the best tech stocks out there. In the past year, the stock has more than doubled from just $106 to the current share price of $216. And now Lam Research Corporation (NASDAQ:LRCX) has just announced two fresh capital return actions.
First, a $2.0B 12-18 month share repurchase program has emerged. Secondly, the dividend was hiked 11.0% from $0.45 to $0.50. That’s the second boost since 2014’s initiation with a payout ratio at ~23% of C18E US free cash flow.
Top B.Riley FBR analyst Craig Ellis applauds these two new initiatives. He says they “lend further support to our bullish excess growth thesis.” And ultimately Ellis concludes “we are encouraged by management’s latest shareholder value creation moves and look for upbeat 4Q Semi trends over the next few months to lend further confidence in C18’s Semi Cap fundamentals.”
He reiterated his “buy” rating with a $250 price target on Nov. 14. Considering that the stock is trading at just $216 this suggests sweet upside potential of 15.3% from the current share price.
Note that this five-star analyst seems to know what he is talking about- he is ranked number 1 on TipRanks (out of 4,731 tracked analysts). On LRCX specifically, Ellis boasts a strong track record with 100% success rate and 61.7% average return across his 12 stock ratings.
Overall, Lam Research has a very confident “strong buy” outlook from the Street with 10 “buy” ratings and just 1 hold rating in the past three months.
Top Dividend Growth Stock: UnitedHealth Group
This giant health care insurer boasts a very impressive dividend growth rate. UnitedHealth Group Incorporated (NYSE:UNH) has increased its dividend for seven of the last ten years. Back in 2012, the company paid a dividend of $0.2125. Now that number stands at $0.75. We can also look at it from an annual perspective. In 2012 the company paid a total dividend of $0.80. Fast forward to 2017 and the company looks set to pay a dividend of just over $2.87.
The icing on the cake: this stock has received 10 consecutive “buy” ratings from analysts over the last three months. These analysts have an average price target on the stock of $225- 6% upside from the current share price. Note however that the price targets are moving increasingly higher- an encouraging sign of the company’s direction going forward.
Top Cantor Fitzgerald analyst Steven Halper recently wrote an interesting report on UNH. He draws attention to UNH’s fast-growing health services business Optum- which already generated huge revenue in 2016 of $84 billion.
“Optum’s capabilities enhance the operating performance of UHC and represent an important growth vehicle for UNH. UNH has been aggressively deploying capital to build Optum in recent years. Given the combination of strong UHC fundamentals and strong growth at Optum, we believe UNH shares should be a core holding for large-cap portfolio managers” says Halper.
He has a “buy” rating and $225 price target on the stock. It’s also worth mentioning that Halper’s track record that speaks for itself. This five-star analyst boasts a 100% success rate and 26.4% average return across his 23 ratings on UNH stock.
Top Dividend Growth Stock: General Dynamics
This American multinational corporation is one of the world’s largest aerospace and defense contractors based on revenue. From a dividend perspective, General Dynamics Corp (NYSE:GD) offers a yield of 1.68% and a payout of $0.84. This works out at an annualized dividend payment of $3.36. The company has recorded dividend growth for a whopping 25 consecutive years- giving it the nickname “dividend aristocrat.”
Shares in GD are trading slightly lower following mixed Q3 results at the end of October. Indeed, prices are now at $200 from close to $214 last month. For the savvy investor, however, this could represent a buying opportunity. Top Cowen & Co analyst Cai Rumohr has not lost faith in GD.
On the contrary, he says the stock’s “long-term thesis (defense growth; Gulfstream upturn; lots of firepower) remains intact.” And bear in mind that over the past five years this stock has grown fairly consistently from $66 to $200.
Interestingly Rumohr also notes that: “GD trades for a 17% discount to defense big caps LMT, NOC, & RTN on C18 EV/EBITDA, despite peer-high 6-7% revenue growth in 2018-2019 driven by comparable domestic & foreign defense programs.”
His bullish outlook is echoed by the majority of the Street. General Dynamic’s “strong buy” consensus breaks down into five “buy” ratings versus just one “hold” rating in the previous three months.
With an average price target of $226.67, analysts are predicting considerable upside of over 13% from the current share price.
Top Dividend Growth Stock: Visa
Last but by no means least, we have leading global payments company Visa Inc (NYSE:V). For an investor, Visa is something of a dividend growth dream. The stock boasts a current yield of 0.7%- and a 10-year dividend growth rate of 625%. This breaks down into a very impressive 8 consecutive years of growth. Add to the mix a very low payout ratio and strong earnings potential and you can see why this is a top stock to track right now.
Cantor Fitzgerald’s Joseph Foresi is one of the top 50 analysts on TipRanks. He only recently began to cover V stock, but is already displaying a very bullish sentiment. “We remain attracted to Visa’s dominant position in the global card network market and its strong, recognizable international brand” wrote Foresi on Oct. 26.
Following strong results for the fiscal fourth quarter, Foresi sees promise from “Visa’s opportunity to capitalize on the global conversion of cash into credit, international opportunities, and digital payment tailwinds.”
In total, this “strong buy” stock boasts 16 “buy” ratings in the past three months versus just two “hold” ratings. These analysts have an average price target on the stock of $123.06- with $135 on the high-end. Considering that Visa is now trading at $111.97, this translates into upside potential of 10% from the current share price.
Which stocks are the top 25 analysts recommending right now? Find out here.
TipRanks offers investors the latest insight into eight different sectors by tracking the activity of 4,500 analysts, 5,000 financial bloggers and even 37,000 corporate insiders. As of this writing, Harriet Lefton did not hold a position in any of the aforementioned securities.