MSFT

3 Stocks Ready for Dividend Hikes in 2024

This year has been a great one for dividend investors. Countless companies have already increased their payouts, with many hiking them by 10% or more. Several others will likely give their investors a big raise this year.

Microsoft (NASDAQ: MSFT), Starbucks (NASDAQ: SBUX), and MPLX (NYSE: MPLX) appear poised to hike their payouts in 2024. Here's why that makes them appealing options for dividend growth investors.

1. A dividend growth machine

Microsoft might not offer a big dividend yield (it's currently around 0.8%). However, the tech titan has done an exceptional job of growing its payout over the years. It has grown its dividend at around a 10% compound annual rate over the past 10 years, including giving investors a 10% raise last September. At its current 10% compound annual growth rate, Microsoft's dividend will double every seven years.

The company is in an excellent position to continue growing its payout at a strong annual clip. It's a cash flow machine. It produced a whopping $49.4 billion of net cash from operations over the last six months and $29.8 billion of free cash. That easily covered its $10.6 billion in dividend payments. Microsoft also has a cash-rich balance sheet ($81 billion in cash, equivalents, and short-term investments at the end of its last fiscal year).

Microsoft has lots of growth drivers, including its investments in gaming (Activision acquisition) and AI (OpenAI partnership). These and other catalysts should enable the tech titan to continue growing its cash flow at a healthy clip. Because of that, it seems likely that the company will hike its dividend again later this year.

2. Caffeinated dividend growth

Starbucks delivered its 13th annual dividend increase last fall, hiking its payout by another 7.5%. With that raise, the coffee giant has grown its payout at an impressive 20% compound annual rate since initiating its dividend in 2010. It currently yields 2.5%, which is well above average (considering the S&P 500's 1.4% dividend yield).

The company launched its Triple Shot Reinvention strategy last fall to recharge its growth. It plans to accelerate store expansion to 55,000 global locations by 2030 (up from 38,000) while unlocking efficiency gains to save $3 billion annually.

Starbucks believes this strategy will drive 10% to 12% revenue growth in fiscal 2024 and 15% to 20% earnings growth. Meanwhile, it sees revenue rising 10%-plus and earnings growth of more than 15% over the long term. Because of that, the company could reaccelerate dividend growth by giving its shareholders an even bigger raise this year.

3. Big-time growth and income

MPLX has increased its distribution every year since its formation in 2012. The master limited partnership (MLP) has hiked its payout by 10% in each of the last two years. That's impressive, considering its monster yield of 8.4%.

That big-time payout is on an extremely firm foundation. MPLX generated enough cash to cover it by a comfy 1.6 times last year. That enabled it to retain all the money needed to fund its expansion projects with over $800 million to spare. It used that excess cash to make an opportunistic acquisition (it bought the remaining 40% interest in a gathering and processing joint venture for $270 million in December) and strengthen its already fortress-like balance sheet. MPLX ended the year with $1 billion in cash and a low 3.3 times leverage ratio (well below the 4.0 times its stable cash flow could support).

The company's cash flow is growing at a solid clip (more than 7% last year), fueled by organic expansion projects. It expects to complete several this year, which, along with last year's acquisition, will give it more cash to grow its payout. Add its growing cash flow to its robust financial capacity, and the MLP could easily hike its payout by another 10% this year.

Compelling options for those seeking rapidly rising income streams

Microsoft, Starbucks, and MPLX have grown their payouts at above-average rates over the years. That seems likely to continue in 2024. Because of that, they're attractive options for those seeking fast-growing dividends.

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Matt DiLallo has positions in Starbucks. The Motley Fool has positions in and recommends Microsoft and Starbucks. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. 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.

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