As we navigate through Q3 of 2024, all major indexes continue to set new record highs on an almost weekly basis. During this bullish rally, discovering high-quality dividend growth stocks that still trade at reasonable valuations has become increasingly challenging. Still, not all stocks have kept pace with the broader market’s ascent. Many quality names have lagged, creating potential opportunities for investors looking to generate growing income.

In this article, I will highlight three dividend growth stocks that remain attractively valued despite the market’s recent surge. The following companies are characterized by their solid dividend growth track records, each consistently increasing their dividends for at least 15 years. I have also ensured that these stocks feature a dividend growth compound annual growth rate (CAGR) of at least 8% over the past decade to ensure their income growth has exceeded inflation.

Whether you’re looking to bolster your portfolio with reliable income-generating assets or seeking stocks with a proven history of rewarding shareholders at a discount, these three picks are worth your attention.

PepsiCo (PEP)

PepsiCo (NASDAQ:PEP) stands out as one of the most appealing dividend growth stocks to consider in Q3. As a global leader in the food and beverage industry, PepsiCo boasts a diverse portfolio of iconic brands, including Pepsi, Mountain Dew, Gatorade, Tropicana, Lay’s, and Quaker. This lineup has solidified the company’s dominance in the consumer staples sector. Moreover, PepsiCo has exhibited consistent growth over the years due to the inelastic demand for its products.

In line with my criteria, PepsiCo’s dividend growth track record is remarkable, featuring 52 consecutive years of dividend increases. This means the company is a member of the elite group of stocks known as Dividend Kings. Also, over the past decade, the company has increased its dividend per share (DPS) at a CAGR of 8.2%, providing its shareholders with growing income that has outpaced inflation.

Looking ahead, PepsiCo appears well-positioned for growth, particularly in international markets where its products consistently gain market share each quarter. Simultaneously, the stock’s ongoing decline has pushed its dividend yield to a compelling 3.3%. Combined with the stock trading at a P/E of 20.2X based on this year’s expected earnings per share (EPS), which is below its historical average, I find PepsiCo’s investment case rather attractive.

Air Products and Chemicals (APD)

The second strong dividend growth forming a compelling investment case as we enter Q3 is Air Products and Chemicals (NYSE:APD). The industrial gases company provides essential products and services to a wide range of industries, including energy, healthcare, and manufacturing. Its shares have declined by about 14% over the past year. Historically, Air Products and Chemicals stock has rarely underperformed the market, suggesting the recent lag presents an attractive buying opportunity—especially with its growth prospects remaining robust.

For context, Air Products boasts a tremendous dividend growth track record, having hiked its dividend every year for the past 42 years. Over the past decade, the company’s dividend increases have recorded a CAGR of 9.5%, a special feat considering the long-established nature of this growth trajectory.

In the meantime, the stock’s decline over the past year has led to its forward P/E getting compressed to roughly 20X, slightly below its 10-year average. I believe this presents a compelling opportunity, further solidified by consensus estimates, which see Air Products and Chemicals’ EPS growing at a CAGR of 10.4% over the next five years.

Archer-Daniels-Midland (ADM)

The final dividend growth stock on my list is Archer-Daniels-Midland (NYSE:ADM). At $64.40 today, ADM’s stock seems to be notably undervalued. It is significantly below its 2022 peak of about $97 and close to the levels seen in spring 2021. Yet, its investment case remains robust. Being one of the world’s most prominent agricultural processors and food ingredient providers, ADM is still well-positioned to keep delivering strong results moving forward.

This notion has held true for decades. ADM has proven its resilience, as its essential farm products, like vegetable oils, sweeteners, and both plant-based and animal-based proteins, are vital for meeting global nutritional needs. This resilient demand for its products means its business model is recession-resistant, which explains how the company has managed to increase its dividend year over the past 51 years. Its dividend growth CAGR over the past decade also stands at a strong 9%, even though many investors perceive farm products as generally lacking growth prospects.

With shares currently trading at only 11.7 times this year’s EPS, I believe that ADM stock presents a significant margin of safety for investors concerned about lofty valuations in today’s market. Furthermore, its current dividend yield stands at 3.2%, providing decent income. The dividend yield is also likely to appeal to a broader investor base as interest rate cuts come into play.

On the date of publication, Nikolaos Sismanis 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.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.