Yield isn't everything when it comes to dividend investing.
Indeed, a steady, rising payout is what leads to long-term capital appreciation. Dividend growth not only makes a stock more attractive to new income investors, but also rewards existing investors with increasingly higher yields on shares purchased at lower prices in the past. Additionally, dividend growth tends to be a sign of health, analysts say.
"Companies with the ability to consistently grow dividend payments tend to be strong franchises," says Tony DeSpirito, portfolio manager for BlackRock's equity dividend portfolios. "A healthy balance sheet and ample free cash flow provide the means to grow the dividend."
After running the numbers on all dividend payers among the 1,200 largest U.S. companies, analysts at Blockforce Capital (formerly Reality Shares) identified the best dividend growth stocks to buy now.
The company's Divcon dividend-health rating system assesses the likelihood that companies will grow or cut their dividends in the next 12 months. Analyst Kian Salehizadeh says these are the top five dividend growth stocks for the fourth quarter based on the firm's proprietary dividend growth data.
Market value: $46.9 billion
Dividend yield: 1.1%
5-year annualized dividend growth rate: 16%
Analysts' opinion: 12 strong buy, 3 buy, 3 hold, 0 sell, 0 strong sell
Beauty products and skincare company Estee Lauder ( EL , $128.08) might not blow investors away with its dividend yield, but it's hard to beat when it comes to divided growth.
Salehizadeh says EL has ample free cash flow to support future dividend growth and it can always reallocate funds from future stock buybacks to support dividend increases.
"The company continues to find innovative ways to stay relevant with millennials," the analyst adds.
Analysts expect Estee Lauder to generate average annual earnings growth of 11.2% for the next five years, according to data from Thomson Reuters.
Market value: $118.3 billion
Dividend yield: 1.0%
5-year annualized dividend growth rate: 14%
Analysts' opinion: 12 strong buy, 2 buy, 9 hold, 1 sell, 0 strong sell
Nike ( NKE , $74.51), a member of the Dow Jones Industrial Average, is another stock with ho-hum yield but strong dividend growth rate.
The athletic footwear and apparel maker has "lots" of free cash flow to support future dividend growth, the Salehizadeh says, and can repurpose money currently allocated to buybacks to fund future payout hikes.
"The current marketing campaign with Colin Kaepernick has really boosted sales and brand awareness," he adds.
Shares in Nike were up nearly 20% for the year-to-date through Oct. 12 vs. a gain of just 2.6% for the broader S&P 500.
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Market value: $143 billion
Dividend yield: 0.2%
5-year annualized dividend growth rate: 15%
Analysts' opinion: 14 strong buy, 4 buy, 7 hold, 0 sell, 0 strong sell
Nvidia ( NVDA , $235.13) has become synonymous with share-price appreciation, not payouts, but it's a sneaky-strong dividend grower, Salehizadeh says.
The graphics chipmaker on the cutting edge of PC gaming, artificial intelligence, cloud-based computing and crypto-currency has a five-year annualized dividend growth rate of 15%. Salehizadeh expects more to come.
"As long as gaming, AI and crypto sectors continue to shine, Nvidia will be a top pick," Salehizadeh says, with very strong profit growth and free cash flow supporting dividend hikes.
Analysts forecast NVDA earnings to increase at an average rate of 17.2% annually for the next five years, according to Thomson Reuters data.
Market value: $247.5 billion
Dividend yield: 1.3%
5-year annualized dividend growth rate: 27%
Analysts' opinion: 14 strong buy, 2 buy, 1 hold, 0 sell, 0 strong sell
UnitedHealth Group's ( UNH , $257.12) whopping five-year annualized dividend growth rate of 27% is just one of the reasons income investors should like this name.
The nation's largest publicly traded health insurance company by both annual revenue and market value enjoys "very strong earnings growth," Salehizadeh says, with "an abundance of growth opportunities over the next several years."
Not only is UNH is Wall Street analysts love it too.
As one of the 50 best stocks of all time , it's not hard to see why.
Market value: $297.6 billion
Dividend yield: 0.6%
5-year annualized dividend growth rate: 27%
Analysts' opinion: 25 strong buy, 2 buy, 1 hold, 0 sell, 0 strong sell
The world's largest payments network is well-positioned to benefit from the growth of cashless transactions and digital mobile payments.
"The company continues to innovate in the payment processing space, incorporating new technologies for P2P money transfers, among other areas," Salehizadeh says.
Analysts polled by Thomson Reuters expect Visa's profits to increase an average of 19% a year over the next half-decade.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.