In this article, we will take a look at some of the best dividend growth stocks to buy and hold in 2025.

Dividend stocks had a challenging year in 2024 as investor interest largely shifted toward technology stocks. The Dividend Aristocrat Index, which monitors companies with at least 25 years of consecutive dividend growth, rose by just over 5% year-to-date, significantly trailing the nearly 26% return of the broader market. This underperformance isn’t unusual for dividend stocks, which often struggle to compete for attention against more dynamic market options. However, seasoned investors may recognize the enduring value and potential of dividend stocks over the long term.

Also read: 8 Best German Dividend Stocks To Invest In

Historically, dividends have played a significant role in the total returns of US stocks, accounting for nearly one-third of overall equity returns since 1926. Between 1980 and 2019, a period marked by declining interest rates, dividends contributed 75% to the broader market’s return. In an environment of falling interest rates, dividends become even more valuable by providing a steady cash flow when fixed-income investments may offer lower yields. Companies that initiate dividends rarely stop paying them and often increase payouts over time. In addition, offering a dividend can enhance a stock’s appeal to investors, potentially boosting its market value.

According to a report by Franklin Templeton, over the last decade, dividends for the broader market index have consistently increased, with an average annual growth rate of just over 7%. In favorable market conditions, dividends have boosted total returns. During challenging years, such as 2020 and 2022, when returns were low or negative, dividends played a more significant role in total returns, offering stability and strengthening portfolio resilience.

This resilience of dividend stocks is rooted in the robust financial health and strong balance sheets of the companies behind them. Analysts emphasize the importance of targeting high-quality dividend-paying firms when investing in this category. Ramona Persaud, who manages the Fidelity Equity-Income Fund and Fidelity Global Equity Income Fund, shares this perspective. She prioritizes investments in well-established companies with solid dividends and attractive valuations. Persaud noted that falling interest rates often create favorable conditions for dividend stocks, as their yields become more appealing compared to declining bond yields. She also highlighted that lower rates could broaden market gains, unlike the past two years, where growth was dominated by a small number of large-cap stocks. Here are some other comments from the analyst:

“Ideally, I look for a stock that has a combination of these factors. I can’t always get all 3, so I look for a good balance of them. If I can get higher quality at a cheaper price, and the company pays a compelling dividend, that’s when a stock is really interesting to me.”

High-quality companies also provide the benefit of consistent dividend growth. Investors view dividends as a long-term commitment, so companies that pay them must maintain profitability, generate returns, and ensure steady cash flow. This makes dividends an important measure of a company’s overall quality. Firms that regularly raise their dividend payments show that they are consistently generating profits, which may indicate greater resilience during economic or market downturns.

Our Methodology:

For this article, we scanned the list of dividend aristocrats, which are the companies that have raised their payouts for 25 consecutive years or more. From that list, we picked 10 companies with the highest 5-year annual average dividend growth rates. The stocks are ranked in ascending order of their annual average dividend growth in the past five years. We also considered hedge fund sentiment around each stock in Insider Monkey’s database, as of the third quarter of 2024.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points. (see more details here).

10. PepsiCo, Inc. (NASDAQ:PEP)

5-Year Annual Dividend Growth Rate: 7.04%

PepsiCo, Inc. (NASDAQ:PEP) is an American multinational food, snack, and beverage company that offers a wide range of related products to its consumers. The company owns Frito-Lay, the largest producer of salty snacks globally, along with Pepsi, the second-largest nonalcoholic beverage brand, and Quaker Oats, a significant player in the packaged food sector. With its extensive global brand presence, strong marketing and innovation capabilities, and robust financial position, the company is well-positioned as an industry leader and consolidator. For instance, its recent acquisition of Siete Foods enhances its presence in the Mexican-American food segment, spanning salty snacks and packaged foods. In essence, PepsiCo is a solid consumer staples business, a sector renowned for its resilience during periods of economic uncertainty.

PepsiCo, Inc. (NASDAQ:PEP) reported strong earnings for the third quarter of 2024, with revenues surpassing $23.3 billion. Although the company faced headwinds, including weaker results in North America, product recall challenges at Quaker Foods North America, and geopolitical disruptions in certain international markets, it demonstrated resilience. Through efficient cost management, the company sustained profitability while continuing to invest strategically to enhance its market position. In the past 12 months, the stock has fallen by nearly 10%.

Amid these persistent challenges, PepsiCo, Inc. (NASDAQ:PEP) has revised its outlook for organic revenue growth, now expecting a modest low-single-digit increase, down from its earlier estimate of approximately 4%. Nonetheless, the company remains dedicated to shareholder returns, planning to distribute $8.2 billion through dividends and share repurchases in 2024. In addition, the company has been growing its payouts for 52 consecutive years, which makes it one of the best dividend aristocrat stocks on our list. Currently, it offers a quarterly dividend of $1.355 per share and has a dividend yield of 3.55%, as of December 29.

At the end of Q3 2024, 58 hedge funds tracked by Insider Monkey held stakes in PepsiCo, Inc. (NASDAQ:PEP), compared with 65 in the previous quarter. The overall value of these stakes is over $4.44 billion. With over 7.8 million shares, Fisher Asset Management was the company’s leading stakeholder in Q3.

9. AbbVie Inc. (NYSE:ABBV)

5-Year Annual Dividend Growth Rate: 7.69%

AbbVie Inc. (NYSE:ABBV) is an American pharmaceutical and biotech company. It stands out among major pharmaceutical companies for its effective execution of a well-structured pipeline strategy, a key factor that makes its stock worth considering. In the past 12 months, the stock has surged by nearly 15%.

According to analysts, over the next few years, two blockbuster drugs, Skyrizi and Rinvoq, are poised to play a central role in AbbVie Inc. (NYSE:ABBV)’s portfolio. In the third quarter, these two drugs generated over $4.8 billion in revenue. By 2027, they are projected to achieve annual sales exceeding $27 billion, spanning various indications, including rheumatology, dermatology, psoriatic conditions, and inflammatory bowel diseases. Overall, the company posted revenue of $14.46 billion in Q3 2024, representing a 4% increase from the same period in the previous year. The Immunology Portfolio generated over $7 billion, also growing 4% year-over-year. In August, the company finalized an $8.7 billion cash acquisition of Cerevel Therapeutics, a neuroscience-focused pharmaceutical company. This acquisition bolstered its pipeline with promising drug candidates, including emraclidine, a potential therapy for schizophrenia.

AbbVie Inc. (NYSE:ABBV) is popular among income investors because of its 52-year streak of dividend growth. Moreover, its five-year annual average dividend growth rate comes in at 7.69%. The company pays a quarterly dividend of $1.64 per share and has a dividend yield of 3.69%, as of December 29.

Insider Monkey’s database of Q3 2024 showed that 68 hedge funds held stakes in AbbVie Inc. (NYSE:ABBV), up from 67 a quarter earlier. The stakes are worth nearly $2.6 billion. With over 1.7 million shares, AQR Capital Management was the company’s leading stakeholder in Q3.