7 Large-Cap Stocks With Sustained Dividend Growth Potential

  • These large-cap stocks of companies with robust cash flows provides visibility for sustained dividend growth.
  • Apple (AAPL): Robust cash flows and a strong balance sheet. Growth to be supported by segments that include services and wearables.
  • Chevron (CVX): A cash flow machine with low-break even assets. Strong balance sheet with big investment plans over the next few years.
  • Newmont (NEM): Low all-in sustaining cost will ensure strong free cash flows even if gold is rangebound. Investment grade balance sheet for aggressive investments.
  • Costco (COST): Healthy growth to sustain with strong omni-channel sales presence and new warehouse openings. Sustained growth in recurring membership fee revenue.
  • Microsoft (MSFT): The cloud business likely to remain the growth driver. Ample financial flexibility for further inorganic growth.
  • Lockheed (LMT): Strong order backlog that’s likely to swell with defense spending likely to accelerate.
  • AstraZeneca (AZN): Healthy revenue growth with well diversified geographic presence. Strong pipeline of drugs to ensure that growth sustains.
large-cap stocks - 7 Large-Cap Stocks With Sustained Dividend Growth Potential

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Growth stocks were the darlings of the market in the rally after March 2020. However, as equities get jittery on multiple macro-economic headwinds, large-cap stocks have found relatively higher interest.

In general, large-cap stocks have low volatility and with established businesses, cash flows are robust. Investors therefore benefit from steady stock upside coupled with dividend gains.

Additionally, there are large-cap stocks that have sustained dividend growth visibility. These are attractive as yields are likely to remain stable even if the stock trends higher.

It’s also worth mentioning that the Vanguard Large Cap Index Fund (NYSEARCA:VV) has delivered cumulative returns of 278% in the last 10 years. While there is a tendency to pursue growth stocks for healthier portfolio returns, large-cap stocks have been silent performers.

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

TICKER COMPANY CURRENT PRICE
AAPL Apple Inc. $138.93
CVX Chevron Corporation $146.51
NEM Newmont Corporation $61.17
COST Costco Wholesale Corporation $485.76
MSFT Microsoft Corporation $259.58
LMT Lockheed Martin Corporation $433.52
AZN AstraZeneca PLC $69.95

Apple

Apple (AAPL) logo on building
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Without doubt, Apple (NASDAQ:AAPL) is my top pick from large-cap dividend growth stocks. The company’s business is a cash flow machine and that’s unlikely to change considering the innovation factor.

For second quarter 2022, Apple declared a dividend of 23 cents. On a year-on-year basis, dividends increased by 5%. It’s worth noting that Apple reported cash and equivalents of $193 billion, as of March 2022. For the first half of 2022, the company reported operating cash flow of $75 billion. With such robust cash generation potential, dividend growth and share repurchase will sustain.

Apple has also been diversifying with the services segment reporting record revenue in Q2 2022. The wearables segment also has significant growth potential. With a robust cash buffer, the company is positioned for sustained organic and inorganic growth. Entry into electric vehicles is also a potential catalyst. Overall, AAPL stock is a long-term portfolio stock for value creation from capital and dividend gains.

Chevron Corporation

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With some correction in oil prices in recent weeks, Chevron (NYSE:CVX) stock has also declined from highs. I believe that this is a good opportunity to accumulate CVX stock for the long-term.

From a fundamental perspective, there are two big reasons to like Chevron.

First, the company has an investment-grade balance sheet. Based on Q1 2022 cash flows, Chevron is positioned to deliver operating cash flow in excess of $30 billion for 2022.

Furthermore, Chevron has quality oil assets with a low break-even. The company managed positive operating cash flow even during the pandemic year.

When it comes to dividends, Chevron has an attractive yield of 3.9%. The company plans to invest $15 to $17 billion annually over the next few years. These investments will translate into cash flow upside and dividend growth.

With strong financial flexibility, Chevron is also making aggressive investments in the renewable energy sector. With the recent acquisition of Renewable Energy Group, Chevron is positioned to be a leader in the U.S. renewable fuel segment.

Newmont Corporation

Newmont (NEM) logo on a mobile phone screen
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In a portfolio of large-cap stocks for the long-term, it’s important to have a precious metal stock. With geo-political tensions and negative real interest rates, gold is likely to be a performer. I like Newmont (NYSE:NEM) among dividend growth stocks for several reasons.

The company has a strong asset base with stable production visibility well into 2040s. Newmont reported 96 million ounces of gold reserves with a majority of assets in North and South America.

More importantly, Newmont expects to lower it’s all-in sustaining cost to $800 to $900 an ounce in the next few years. With gold trading above $1,800 an ounce, there is visibility for EBITDA margin expansion.

Newmont also has an investment grade balance sheet. With a liquidity buffer of $7.3 billion and a net-debt-to-adjusted-EBITDAX of 0.3x, the company is positioned for aggressive investments.

Overall, NEM stock looks attractive from the perspective of upside as well as dividend growth. If gold remains in a long-term uptrend (very likely), Newmont is positioned to create immense value.

Costco Wholesale

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

There has been weakness in the retail sector lately fueled by inflation and recession fears. I believe that correction in quality retail stocks is a good long-term accumulation opportunity.

Costco (NASDAQ:COST) is among the top large-cap stocks to consider for dividend growth. As a matter of fact, the company’s dividends have increased at a compound annual growth rate (CAGR) of 13.04% in the last 10 years.

For the 39 weeks ended May 31, Costco reported 16.5% growth in revenue to $165.56 billion. E-commerce growth was robust. As Costco strengthens its omni-channel network, long-term comparable store sales are likely to remain strong.

Costco is also attractive from the perspective of recurring revenue. The company has 64.4 million household card holders and generated $4.1 billion in membership fee in the last 12 months. With continued investment in new stores, member growth is likely to sustain.

After a meaningful correction from highs of $612, COST stock provides long-term investors with an attractive entry point.

Microsoft

The Microsoft (MSFT) logo on a corporate office building during the day time.
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Microsoft (NASDAQ:MSFT) stock is another name among large-cap stocks that has a solid dividend growth history. In the last 10 years, the company’s dividends have increased at a CAGR of 12.28%.

With a strong cash buffer and long-term growth visibility, I believe that Microsoft is positioned for further dividend growth.

For Q3 2022, Microsoft reported 18% revenue growth to $49.4 billion. For the same period, the company’s earnings increased by 9% on a year-on-year basis. It’s worth noting that intelligent cloud business accelerated by 26% to $19.1 billion.

Further, Azure and other cloud services reported revenue growth of 46%. This segment is likely to remain the key growth driver.

In March, Microsoft closed the acquisition of Nuance Communications. This will help Microsoft make inroads into healthcare AI. With a strong balance sheet and robust cash flows, the company is positioned to pursue further acquisitions. Same goes for it’s pending purchase of Activision Blizzard (NASDAQ:ATVI).

Overall, MSFT stock looks attractive at a forward P/E of 28.8. With sustained dividend growth and share repurchases, there is ample scope for value creation.

Lockheed Martin

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

In the defense sector, I am bullish on Lockheed Martin (NYSE:LMT) from the perspective of earnings and dividend growth. LMT stock, after some correction from highs, looks attractive at a forward P/E of 15.6.

Global geo-political tensions are likely to remain high with several points of friction. This will ensure that global defense spending growth is steady.

Lockheed Martin is well positioned to benefit from higher defense spending by U.S. and its western allies. In particular, European defense spending is likely to witness growth in the coming years.

Lockheed has an order backlog of $134 billion, which provides revenue and cash flow visibility. For 2022, the company has guided for free cash flow of $6.0 billion. If the order book strengthens, FCF growth is likely.

Currently, LMT stock has an annualized dividend of $11.20 per share. This translates into a dividend yield of 2.67%. Even with potential stock upside, dividend yield above 2.0% seems sustainable.

AstraZeneca

Exterior of the AstraZeneca's manufacturing facility at Snackviken
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In the pharmaceutical sector, AstraZeneca (NASDAQ:AZN) is a quality dividend growth stock pick. AZN stock currently pays a $1.44 per share dividend, which equates to a yield of 2.2% at current levels. I believe that the yield is sustainable.

For Q1 2022, the company reported robust revenue growth of 60% to $11.2 billion. Its Covid-19 vaccine was the key catalyst for top-line growth. However, it’s also worth noting that the oncology segment delivered robust 25% growth.

AstraZeneca is also positioned for earnings growth from the company’s product pipeline. Currently, there are 183 projects in the works with several projects in Phase 2 and 3 clinical trials. As new drugs are marketed globally, growth is likely to sustain.

I also like the fact that the company has a strong geographic diversity. For Q1 2022, AstraZeneca reported 44% of revenue from outside the U.S. and Europe.

The company does have $25.2 billion in net debt as of March 2022. However, with an investment-grade balance sheet and healthy cash flows, dividend growth visibility is bright. In particular, considering the product pipeline.

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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