Dividend growth investing is a strategy that can provide both steady income and potential capital appreciation. Companies that consistently raise their dividends often demonstrate financial strength, solid cash flows, and a positive outlook for their business. This approach can be particularly attractive for long-term investors looking to build wealth over time.
Two companies that stand out in the realm of dividend growth are The Hershey Company (NYSE: HSY) and Costco Wholesale Corporation (NASDAQ: COST). These well-known brands have established themselves as leaders in their respective industries and have demonstrated a commitment to rewarding shareholders through increasing dividend payments.
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Read on to find out more about these dividend growth powerhouses and why they might deserve a place in your portfolio.
Hershey: A sweet deal for dividend investors
The Hershey Company is a global confectionery leader known for iconic brands such as Hershey's, Reese's, and Kit Kat. The company has a long history of success in the snack and candy market, with a strong presence in North America and growing international operations.
Hershey's dividend growth story is compelling. With a five-year dividend growth rate of 11.9% and a current yield of 2.83%, the company offers an attractive combination of yield and growth. The stock trades at a forward price-to-earnings ratio of 20.2, which is reasonable considering its brand strength and market position. For context, the S&P 500 trades at over 21 times forward earnings at the time of this writing.
Wall Street analysts project low single-digit top-line growth for Hershey in both 2024 and 2025. While this revenue growth may seem modest, it's important to consider the company's stability and fairly consistent performance over long periods. Its stock also trades at just 18.4 times 2026 projected earnings, which is a bargain for a company with Hershey's track record and entrenched market position.
Costco: Bulk-sized returns for patient investors
Costco Wholesale Corporation operates a chain of membership-only warehouse clubs, offering a wide range of merchandise at discounted prices. The company's business model focuses on providing value to its members through bulk purchasing and a curated selection of products.
Costco's dividend growth has been robust in recent years, with a five-year dividend growth rate of 12.3%. However, its current yield of 0.57% is relatively low compared to the wider universe of large-cap dividend-paying stocks. Additionally, the company's forward price-to-earnings ratio of 45.8 is on the high side.
That said, Costco's top-line forecast is promising, with projected growth of 5.3% in 2024 and 7.3% in 2025, per analysts covering the stock. This solid mid-single-digit growth trajectory, combined with the company's strong membership retention rates and expansion plans, supports its premium valuation.
Key takeaways
Hershey and Costco represent two different approaches to dividend growth investing. Hershey offers a higher current yield and trades at a more modest valuation, making it potentially attractive for income-focused investors. Costco, while offering a lower yield, has consistently demonstrated strong growth, a trend that should appeal to investors willing to accept a lower current income for the possibility of greater long-term total returns.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool recommends Hershey. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
