7 Large-Cap Stocks With Sustained Dividend Growth Potential

  • These large-cap stocks with dividend growth potential have healthy free cash flows.
  • Chevron Corporation (CVX): An investment-grade balance sheet and robust free cash flows are a plus.
  • Astra Zeneca (AZN): A strong pipeline of drugs will ensure that healthy top-line and earnings growth sustains.
  • Altria (MO): The core combustible business will remain the cash flow driver and support dividend growth.
  • Apple (AAPL): A strong balance sheet with ample cash buffer to invest in organic and inorganic growth.
  • Costco Wholesale (COST): Among the best retailers considering top-line growth and comparable store sales growth.
  • Lockheed Martin (LMT): A strong order backlog of $135 billion provides clear free cash flow visibility.
  • AT&T (T): This stock is undervalued with a robust dividend yield.
Large-cap stocks with dividend growth potential - 7 Large-Cap Stocks With Sustained Dividend Growth Potential

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There are several large-cap stocks with dividend growth potential even as broad market conditions remain challenging.

In general, large-cap stocks are ignored by investors in a bull market. However, funds flow into large-cap stocks once market sentiment turns bearish. The reason is that large-cap companies have earnings and cash flow stability.

With the market correction, several large-cap stocks are also trading at an attractive valuation. Besides sustained dividend growth, I would expect healthy capital gains from these large-cap stocks.

My focus is primarily on large-cap companies that are relatively immune to economic shocks. The cash flows, therefore, remain robust and provide headroom for dividend growth.

There are cyclical businesses with an investment-grade balance sheet that continue to increase shareholder returns even during challenging times.

Let’s talk about seven large-cap stocks with dividend growth potential.

CVX Chevron $143.20
AZN Astra Zeneca $53.86
MO Altria $41.69
AAPL Apple $153.53
COST Costco $484.36
LMT Lockheed Martin $408.65
T AT&T $16.01

Chevron Corporation (CVX)

Chevron logo on blue sign in front of skyscraper building
Source: Jeff Whyte / Shutterstock.com

From highs of $182, Chevron (NYSE:CVX) stock has corrected by 22% as oil declines on macroeconomic concerns. The 3.9% dividend yield stock looks attractive at current levels for long-term exposure.

There are two primary reasons to believe that CVX stock has sustained dividend growth potential. First and foremost, Chevron has an investment-grade balance sheet.

The company is likely to deliver operation cash flows of approximately $30 billion this year leaving ample flexibility to increase dividends.

Chevron has a quality asset base with a low break-even. Even when oil plunged due to the pandemic, Chevron delivered positive cash flows. The recent correction in oil does not impact the company’s dividend growth potential.

It’s also worth noting that Chevron plans to invest $15 to $17 billion annually over the next few years. These investments should translate into higher cash flows and potential dividend growth.

Astra Zeneca (AZN)

Exterior of the AstraZeneca's manufacturing facility at Snackviken
Source: Roland Magnusson / Shutterstock.com

Astra Zeneca (NASDAQ:AZN) stock has witnessed a sharp correction in the recent past. A key reason is that President Biden commented that the pandemic is over.

The covid-19 vaccine has boosted sales and cash flows for Astra Zeneca. However, the company’s growth does not just depend on the vaccine. The correction presents a good opportunity to accumulate AZN stock.

For the first half of 2022, Astra Zeneca reported healthy growth in the biopharmaceutical, oncology and rare disease segment. This underscores my view on diversified growth drivers. It’s also worth noting that Astra Zeneca has a deep pipeline of drugs.

With several late-stage candidates, the revenue growth visibility remains bright. This is likely to translate into higher cash flows and dividend growth.

Astra Zeneca reported net debt of $24.2 billion as of Q2 2022. However, with robust cash flows, debt servicing is unlikely to be a concern.

Overall, the knee-jerk reaction in AZN stock provides an accumulation opportunity. I expect sustained dividend growth in addition to capital gains.

Altria (MO)

Altria Group, Inc. (MO) logo of US producer and marketer of tobacco and cigarettes is seen on a mobile phone screen.
Source: viewimage / Shutterstock.com

Altria (NYSE:MO) is also among the top large-cap stocks with dividend growth potential.

The company has been a value creator with dividend growth at a CAGR of 8.1% in the last 10 years.

It faces near-term growth headwinds. However, that has not stopped Altria from increasing dividends. Recently, the company increased its quarterly dividend by 4% to 94 cents.

MO stock also trades at a price-earnings ratio of 8.6. The depressed valuation discounts muted growth and headwinds related to Juul.

An important point to note is that even if there is no top-line growth, Altria is positioned to deliver robust free cash flows.

The business developments are also positive in the non-combustible product segment. Altria continues to gain market share among oral tobacco brands in the U.S.

Over the next five years, the smoke-free segment will drive growth.

Apple (AAPL)

Close-up of Apple (AAPL) retail store Logo in Honolulu at the Ala Moana Center. Advertising the latest generation of the ipad, iphones, and ipods with a Retina display.
Source: Eric Broder Van Dyke / Shutterstock.com

Among technology stocks, Apple (NASDAQ:AAPL) stock is worth considering for sustained growth in dividends. AAPL stock has a current dividend yield of 0.6%, which seems relatively unattractive.

However, considering the company’s cash flow generation potential, dividend growth is likely to be robust. As a matter of fact, the company’s dividend growth in the last five years has been at a CAGR of 8.45%.

From a valuation perspective, AAPL stock trades at a forward price-earnings ratio of 24.6, which seems attractive.

J.P. Morgan (NYSE:JPM) recently pointed out that the company’s iPhone 14 sales have been strong. In the near term, this will drive growth. Further, the services segment growth has also been healthy. These key growth drivers are likely to ensure that cash flows continue to swell.

Apple is also well positioned financially for acquisitions and further diversification. There’s speculation that the company’s electric car will be launched in 2024. New segments can potentially boost growth.

Costco Wholesale (COST)

A Costco Wholesale (COST) warehouse in Auburn Hills, Michigan.
Source: ilzesgimene / Shutterstock.com

Among large-cap stocks with dividend growth potential, Costco (NASDAQ:COST) is a quality name to consider.

COST stock has been sideways for the last 12 months, and I believe that a break-out on the upside is imminent. Costco has been among the best-performing retailers even amidst the inflation headwinds.

For FY2022, Costco reported strong sales growth of 16.0% to $222.7 billion. With an improved omnichannel sales presence, Costco is well-positioned to sustain healthy growth. Comparable store sales growth has also remained robust.

This will imply higher cash flows and dividend growth.

As of FY2022, Costco reported 838 warehouses. However, the company has only two warehouses in China. With a limited presence in emerging Asia and Southeast Asia, there seems to be ample scope for international growth.

As the company adds new warehouses, membership fee (recurring) revenue will continue to increase. This is another factor that’s likely to support healthy cash flows.

Lockheed Martin (LMT)

A Lockheed Martin (LMT) Space Systems sign in Sunnyvale, California.
Source: Ken Wolter / Shutterstock.com

Lockheed Martin (NYSE:LMT) stock has an attractive dividend yield of 2.75% and has trended higher by 15% in the last 12 months.

The F-35 remains the key cash flow machine for Lockheed Martin. Last month, Switzerland signed a $6 billion deal with Lockheed for F-35 jets. As of Q2 2022, Lockheed reported a total backlog of $135 billion. The backlog provides clear free cash flow visibility.

Considering the geo-political outlook, it’s likely that the backlog will continue to swell. Most European countries are short of the NATO defense spending target.

With ongoing tensions between Russia and Ukraine, defense spending in Europe will increase. This is a key reason to believe that LMT stock is among the top large-cap stocks with dividend growth potential.

AT&T (T)

AT&T logo on wooden background
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With the spinoff of the media division, AT&T (NYSE:T) had cut dividends by 50%.

The stock still offers an attractive 7% dividend yield. Additionally, T stock trades at a forward price-earnings ratio of 6.2, and I believe that a big rally is impending.

There are several reasons to believe that dividend growth is likely. First, AT&T has used proceeds from the media division spinoff for deleveraging. As the debt servicing cost declines, the company has higher headroom for shareholder rewards.

Furthermore, AT&T expects free cash flow of $14 billion for 2022. This provides ample headroom for dividend growth. It’s also worth noting that AT&T has reported sustained growth in subscribers.

With some big investments in 5G, the business outlook is bullish. I would not be surprised if free cash flows continue to swell in the next few years.

Overall, T stock is positioned to reward investors with healthy dividends and capital gains. The selloff seems overdone for this large-cap stock.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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