Back in 2020, Wharton finance professor Jeremy Siegel opined that dividend stocks represent the only protection against inflation. Even with tight monetary policies, inflation has remained stubbornly high. To maintain purchasing power of money, it’s important to remain invested in some of the best dividend stocks.
Ahead are three dividend growth stocks to buy at attractive valuations. Indeed, the dividend payout and yield in these stocks may be significantly higher in the next five years. Further, capital gains from these stocks will consistently beat index returns. Clearly, total return is likely to be attractive for these dependable dividend growth stocks.
Let’s discuss the business factors that will support earnings growth and cash flow upside.
Albemarle Corporation (ALB)
Albemarle Corporation (NYSE:ALB) stock has been depressed with lithium trending lower in 2023. However, the selling seems to be overdone with ALB stock trading at a forward price-earnings ratio of 5.3. Further, a dividend yield of 1.15% is attractive, making robust dividend growth likely in the coming years.
The key reason to consider ALB is the company’s expansion plans. As of 2022, Albemarle Corporation reported lithium conversion capacity of 200ktpa. The company has guided for almost tripling of lithium conversion capacity by 2027. Further, ALB expects sales volume growth at a CAGR of 20% to 30% through 2027.
If this capacity expansion is coupled with lithium trending higher, the result will be sustained growth in cash flows. This is reason to be bullish on the long-term outlook for lithium considering the impending supply gap. Therefore, ALB stock looks attractive from a dividend and capital gains perspective.
Chevron Corporation (CVX)
Chevron Corporation (NYSE:CVX) stock has been in the news after the company announced a $53 billion Hess Corporation (NYSE:HES) takeover.
From a fundamental perspective, Chevron reported net-debt of 7% as of Q2 2023. This provided CVX with high financial flexibility for the acquisition. Also, the company expects to invest $19 to $22 billion annually after the completion of the acquisition, ensuring healthy growth in operating cash flows.
Notably, in 2022, Chevron reported operating cash flow of more than $45 billion. During the year, Brent oil averaged $100.9. If oil trades around $90 to $100 per barrel, the combined entity is likely to deliver OCF of more than $50 billion.
Therefore, Chevron will be positioned to pursue aggressive investments, increase dividends, and continue with share repurchase.
Apple (AAPL)
Apple (NASDAQ:AAPL) stock has been a massive value creator over the years, likely to remain in a long-term uptrend. At the same time, the company has high financial flexibility to increase dividends at a healthy rate. In the last five years, Apple has reported dividend growth at a CAGR of 6.69%, and could well accelerate further in the next five years.
For Q3 2023, Apple reported revenue of $81.8 billion. Services revenue swelled to record highs with over one billion paid subscriptions. Further, the wearables, home, and accessories segment has ample room for growth driven by product innovation and a wide addressable market. Operating cash flow is likely to remain robust, which will in turn support dividends.
Recently, it was reported that Apple will be investing $1 billion annually towards generative artificial intelligence products. There continues to be speculation around Apple car, which seems to be slated for launch in 2026. With an innovation edge, the company will continue to be a value creator.
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.
