Income investors are always on the lookout for reliable stocks that offer consistent dividend raises year after year. While investing in Dividend Aristocrats can be lucrative, there is an opportunity to potentially earn higher returns by targeting companies before they reach 25 years of dividend growth, the qualification to become an Aristocrat. By investing in these payout raisers earlier in their growth trajectory, investors can potentially see significant increases in their dividend income.
One such example is Fastenal, which recently joined the Aristocrats in 2024 after 25 years of dividend growth. Investors who bought Fastenal before it became an Aristocrat would have seen an 81% jump in dividends over a five-year period, equating to over 12% annual income growth. This demonstrates the potential for higher returns compared to the more mature Aristocrats that may experience slower dividend growth as a result of bloated payout ratios and modest profit growth.
Looking at companies that are on track to become Aristocrats, Nike is a global leader in athletic footwear, apparel, accessories, and equipment, with a strong track record of sales and profit growth. While Nike has faced challenges in recent years such as supply chain issues and competition, its commitment to consistent dividend hikes shows resilience. Similarly, Lockheed Martin, a major defense contractor, has seen consistent dividend increases over the past 21 years, benefiting from the uptrend in U.S. defense spending.
Qualcomm, a communications chipmaker, has delivered impressive total returns since its IPO and has been steadily increasing its dividend. Despite a few setbacks, Qualcomm maintains a sustainable payout ratio and is poised to potentially join the ranks of the Dividend Aristocrats in the future. Southern Co., a utility stock, is another company with a strong dividend history but may be limited in its dividend growth potential due to its already high payout ratio.
Eversource Energy is on the cusp of becoming a Dividend Aristocrat, with 24 consecutive years of dividend growth. However, the company’s recent struggles with wind energy projects have impacted its stock performance, leading to significant impairment charges. While Eversource Energy has a high payout ratio, its dividend growth may be limited in the near future. Overall, investing in companies with a track record of consistent dividend growth before they become Dividend Aristocrats can potentially lead to higher returns and increased income for investors looking to build their retirement portfolios.
