In this article, we discuss 10 best dividend growth stocks to buy in August.
Dividend growth investing is gaining traction among income investors in the current market environment. Dividend growth stocks are mainly known for consistently raising their dividends, even during difficult times. Moreover, these companies usually generate sustainable positive cash flow continuously, which signals toward raising their dividends for shareholders in the long term. The main aim of the dividend growth strategy is to create means of passive income and to increase future earnings through reinvestment of those payouts in respective companies.
As the US stock market faces the jolts of inflation and possible recession, investors are increasingly considering adding dividend growth stocks to their portfolios. Dividend companies like The Coca-Cola Company (NYSE:KO), Johnson & Johnson (NYSE:JNJ), and Walmart Inc. (NYSE:WMT) are notable in this regard as they hold strong dividend growth track records and also presented solid earnings over the years. According to a report by BofA securities, dividend stocks offer better investment opportunities during inflation and have made up one-third of the total returns of the S&P 500 since 1936. The firm further mentioned that stocks with strong balance sheets and positive free cash flow are more favored by investors as these stocks are more committed to shareholder returns.
One other research by S&P Dow Jones Indices also confirms that dividend stocks can weather difficult market environments better than non-dividend stocks. The paper mentioned that the S&P High Yield Dividend Aristocrats outperformed the S&P Composite 1500 by an average of 140 basis points from 1999 to March 2022, when the market was down. Considering the above-mentioned arguments, we will discuss 10 dividend growth stocks to buy in August.
Our Methodology:
We selected stocks that have raised their dividends consistently and have generated positive free cash flow over the years. The stocks are ranked from the lowest yield to the highest. These companies have solid cash flow positions to weather market storms like the one the world is currently going through.
10 Best Dividend Growth Stocks to Buy in August
10. Apple Inc. (NASDAQ:AAPL)
Dividend Yield as of August 7: 0.56%
Years of Consistent Dividend Growth: 9
A California-based multinational tech company, Apple Inc. (NASDAQ:AAPL) has delivered solid returns to shareholders in the past, gaining 319.9% in the last five years. The stock’s last year’s return came in at 13.1%, as of August 6’s close.
Apple Inc.’s free cash flow generation has remained stable over the years. In 2021, the company generated nearly $93 billion in free cash flow, up from $73.3 billion in 2020. Moreover, its operating cash flow for the year came in at over $104 billion, compared with $806 billion in the previous year. Though Apple Inc. ceased its dividend payments in the last recession, the company maintains a 9-year track record of dividend growth. It also raised its quarterly dividend during the recession of 2020. The company pays a quarterly dividend of $0.23 per share, with a yield of 0.56%, as of August 7.
In July, Morgan Stanley raised its price target on Apple Inc. to $180 with an Overweight rating on the shares, as the company reported better-than-expected Q2 results.
Apple Inc. was the ninth most popular stock among elite funds in Q1 2022. 131 hedge funds in Insider Monkey’s database owned stakes in the tech giant, down from 134 in the previous quarter. These stakes are collectively valued at over $182 billion.
In addition to The Coca-Cola Company, Johnson & Johnson, and Walmart Inc., Apple Inc. is also favored by investors due to its dividends and overall returns.
Wedgewood Partners mentioned Apple Inc. in its recently-published Q2 2022 investor letter. Here is what the firm has to say:
“Apple grew revenues +9%, driven by +17% growth in the Services segment. While iPhone revenues grew a modest +5%, it was on an exceptional year ago comparison of +66%. iPhone continues to capture most industry smartphone profits by focusing on high-end price tiers. Apple is taking nearly two-thirds of the revenue share in the premium ($400 and above) smartphone segment. Further, most of the growth was driven by expansion in the “ultra-premium” price tier of $1000 or more per unit.[1] As we have highlighted in the past, Apple’s relentless focus on the development and integration between hardware (especially integrated circuits) and software continues to add significant value for customers of its products and services. We expect this favorable competitive dynamic to continue for the foreseeable future.
9. Walmart Inc. (NYSE:WMT)
Dividend Yield as of August 7: 1.77%
Years of Consistent Dividend Growth: 49
Walmart Inc. is an American multinational retail corporation that operates a chain of departmental stores and grocery stores in the country. In the last five years, the stock gained 57.4%, as of the close of August 6.
In FY21, Walmart Inc.’s operating cash flow stood at $24.1 billion and its free cash flow came in at over $11 billion. The company paid over $1.5 billion in dividends during Q1 2022, which takes its payout ratio to 47.8%. Walmart Inc. has been growing its dividends consistently since 1974. The company pays a quarterly dividend of $0.56 per share, with a dividend yield of 1.77%, as of August 7.
As Walmart Inc. updated its guidance for Q2 2022, Deutsche Bank set a $142 price target on the stock in July but maintained a Buy rating on the shares.
Rajiv Jain’s GQG Partners owned over 15.4 million shares in Walmart Inc., valued at nearly $2.3 billion, becoming the company’s largest stakeholder in Q1 2022. Overall, 60 hedge funds in Insider Monkey’s database owned stakes in the Arkansas-based company in Q1, worth over $6.5 billion.
8. Lowe’s Companies, Inc. (NYSE:LOW)
Dividend Yield as of August 7: 2.11%
Years of Consistent Dividend Growth: 25
Lowe’s Companies, Inc. is a North Carolina-based retail company that specializes in home improvement. In Q1 2022, the company generated $2.6 billion in free cash flow, up from $337 million in the previous quarter. The company’s operating cash flow stood at nearly $3 billion, compared with $934 million in Q4 2021. Lowe’s Companies, Inc. paid $537 million in dividends during the quarter, which confirms its stable FCF generation.
On May 27, Lowe’s Companies, Inc. announced a 31% hike in its quarterly dividend to $1.05 per share. The company has been raising its dividends consistently for over 25 years and has been making uninterrupted dividend payments since 1961. As of August 7, the stock’s dividend yield came in at 2.11%.
In August, Wells Fargo lowered its price target on Lowe’s Companies, Inc. to $220 with an Overweight rating on the shares, expecting the company to perform well in the second half of the year.
At the end of Q1 2022, 65 hedge funds in Insider Monkey’s database owned stakes in Lowe’s Companies, Inc., down from 72 a quarter earlier. The stakes owned by these hedge funds hold a combined value of over $5.5 billion. With over 10.2 million shares. Pershing Square owned the largest stake in the retail company in Q1.
Pershing Square Capital Management mentioned Lowe’s Companies, Inc. in its Q4 2021 investor letter. Here is what the firm has to say:
“Lowe’s is a high-quality business with significant long-term earnings growth potential
Supportive macroeconomic backdrop
-Aging housing stock, lack of new inventory, robust home equity values, and unprecedented pro project backlog
-COVID-19 causing millennials to enter the housing marketPositioned to grow EPS largely independent of market conditions
-Idiosyncratic revenue opportunities driving share gains
-Self-help initiatives catalyzing operating margin expansion
-Buybacks representing ~8% of current market capitalization planned for 2022Multi-year business transformation with substantial earnings upside
-Margin target of 13% has substantial upside; Home Depot at ~15.3% and increasing
-Potential to generate high-teens EPS growth over the next several years.Lowe’s continues to trade at a significantly discounted P/E multiple relative to Home Depot despite materially higher prospective EPS growth. LOW’s share price including dividends increased 63% in 2021 and has decreased 10% year-to-date in 2022.”
7. Sysco Corporation (NYSE:SYY)
Dividend Yield as of August 7: 2.27%
Years of Consistent Dividend Growth: 46
Sysco Corporation (NYSE:SYY) is an American multinational wholesale company that is involved in the marketing and distribution of food products, kitchen equipment, and related products. Since the beginning of the year, the stock gained 9.25%, while it delivered a 17.4% return to shareholders in the last 12 months.
In Q1 2022, Sysco Corporation reported an operating cash flow of $368.8 million, up from $266.2 million in the previous quarter. The company generated $222.6 million in free cash flow, compared with nearly $170 million in the preceding quarter. It ended the quarter with $876 million in cash and cash equivalents, with total assets amounting to over $22.3 billion. By June 2023, Sysco Corporation expects its free cash flow to reach $2.1 billion, which indicates further dividend raises.
Sysco Corporation currently pays a quarterly dividend of $0.49 per share, raising it by 4.3% in April. The company has been a dividend-payer since 1970 and has raised its dividend every year since 1976. As of August 7, the stock’s dividend yield stood at 2.27%.
In June, Barclays called Sysco Corporation a defensive stock and raised its price target to $102 with an Overweight rating on the shares.
As per Insider Monkey’s Q1 2022, 31 hedge funds tracked by Insider Monkey owned stakes in Sysco Corporation, up from 25 in the previous quarter. The collective value of these stakes is over $1.7 billion.
6. Starbucks Corporation (NASDAQ:SBUX)
Dividend Yield as of August 7: 2.29%
Years of Consistent Dividend Growth: 11
An American multinational chain of coffeehouses, Starbucks Corporation (NASDAQ:SBUX) initiated its dividend policy in 2010 and has raised its payouts every year since. It pays a quarterly dividend of $0.49 per share, with a dividend yield of 2.29%, as recorded on August 7.
Starbucks Corporation has reported solid financials over the years. In FY21, the company’s operating cash flow jumped to nearly $6 billion, from $1.6 billion in 2020. The company’s free cash flow also grew to $4.5 billion from $114.2 million in the previous year. In fiscal Q3 2022, the company paid $1.7 billion in dividends, up from $1.5 billion in the same period last year.
In July, JPMorgan raised its price target on Starbucks Corporation to $92 with an Overweight rating on the shares, expecting the company’s growth to accelerate in 2023 and 2024. In addition to SBUX, analysts also presented a positive outlook on dividend stocks like The Coca-Cola Company, Johnson & Johnson, and Walmart Inc..
At the end of Q1 2022, 58 hedge funds tracked by Insider Monkey owned positions in Starbucks Corporation, with stakes valued at over $3.38 billion. In the previous quarter, 53 hedge funds owned stakes in the company, valued at nearly $4 billion. Fundsmith LLP was the company’s leading stakeholder in Q1, owning shares worth nearly $750 million.
Wedgewood Partners mentioned Starbucks Corporation in its Q2 2022 investor letter. Here is what the firm has to say:
“We exited our position in Starbucks during the second quarter. We do not mind admitting that there was a heated internal debate over this position, as there were several conflicting issues to weigh in our decision. Before the pandemic, we had been quite happy with the Company’s execution and the stock’s performance, and we were likewise happy with strategic decisions made during and immediately after the initial pandemic-related lockdowns in 2020, as we have written previously.
Despite our appreciation for the Company’s execution during this period, it was dealing with some concerning issues. First, as a business reliant upon stores being open, the Company faced continuing risks from rolling pandemic-related lockdowns, particularly in China, which is the Company’s second largest and fastest-growing market. A second and related issue was employee illness; even as stores were open, various pandemic waves (Omicron, for example) caused many employees to miss shifts, making it very difficult and expensive for Starbucks to keep its stores staffed properly. (Click here to see the full text)
5. PepsiCo, Inc. (NASDAQ:PEP)
Dividend Yield as of August 7: 2.64%
Years of Consistent Dividend Growth: 49
A multinational beverage company, PepsiCo, Inc. (NASDAQ:PEP) deals in the manufacturing, marketing, and distribution of its products. Since the start of 2022, the stock gained 0.91% while its 12-month returns came in at 13.09%, as of the market close of August 6.
In Q2 2022, PepsiCo, Inc. reported an operating cash flow of over $2 billion, up from $174 million in the previous quarter. The company’s free cash flow for the quarter came in at over $1.07 billion, growing from $696 million in Q1 2022. Its net revenue grew by 7% year-to-date and 5.2% quarter-over-quarter. PepsiCo, Inc. holds one of the strongest dividend growth histories, raising its payouts consistently for the past 49 years. It pays a quarterly dividend of $1.15 per share, with a yield of 2.64%, as of August 7.
In August, Morgan Stanley raised its price target on PepsiCo, Inc. to $198 with an Overweight rating on the shares, appreciating the company’s distribution agreement with Celsius.
At the end of March 2022, 62 hedge funds in Insider Monkey’s database owned stakes in PepsiCo, Inc., down from 60 in the preceding quarter. The collective value of stakes owned by hedge funds stood at over $4.8 billion.
ClearBridge Investments mentioned PepsiCo, Inc. in its Q4, 2021 investor letter. Here is what the firm said:
“The pandemic created opportunities for us to be more aggressive in a variety of areas of the market. We were opportunistic throughout the year. After a strong year for equities, we sought to bolster more defensive areas of the portfolio and added to PepsiCo, increasing our exposure to a high-quality and stable name.”
4. Bristol-Myers Squibb Company (NYSE:BMY)
Dividend Yield as of August 7: 3.00%
Years of Consistent Dividend Growth: 16
Bristol-Myers Squibb Company (NYSE:BMY) is a New York-based multinational pharmaceutical company. The stock delivered a 271.3% return to shareholders in the past five years and gained 7.03% in the last year.
Bristol-Myers Squibb Company generated $15.2 billion in free cash flow in FY21, up from $13.3 billion in the last year. The company’s operating cash flow grew to $16.2 billion, from $14 billion FY20. Bristol-Myers Squibb Company pays a quarterly dividend of $0.54 per share. The company has been raising its dividends consistently for the past 16 years. Its dividend payments are covered by its payout ratio of 70%. As of August 7, the stock’s dividend yield was recorded at 3.00%.
Following the company’s recent quarterly earnings, JPMorgan lifted its price target on Bristol-Myers Squibb Company in July to $85 with an Overweight rating on the shares.
The number of hedge funds tracked by Insider Monkey owning stakes in Bristol-Myers Squibb Company grew to 70 in Q1 2022, from 66 in the previous quarter. These stakes hold a consolidated value of over $2.43 billion. Two Sigma Advisors owned the largest stake in the company in Q1, worth $318.4 million.
Carillon Tower Advisers mentioned Bristol-Myers Squibb Company in its Q1 2022 investor letter. Here is what the firm has to say:
“Stock selection contributed the most while sector allocation was also positive. An underweight to communication services and an overweight to energy helped performance, while an underweight to consumer staples and an overweight to materials detracted. Stock selection was strong within healthcare and materials but was weak within information technology and industrials. Bristol-Myers Squibb (NYSE:BMY), the biopharmaceutical company, entered into accelerated share repurchase agreements.”
3. Extra Space Storage Inc. (NYSE:EXR)
Dividend Yield as of August 7: 3.04%
Years of Consistent Dividend Growth: 12
Extra Space Storage Inc. (NYSE:EXR) is a Utah-based real estate investment trust company that mainly invests in self-storage units. The stock has delivered sound returns to shareholders since its IPO in 2004, gaining 1,477%. It gained 158.4% in the last five years, as of the close of August 6.
In FY21, Extra Space Storage Inc. reported an operating cash flow of $952.4 million, compared with $771.2 million in FY20. The company’s free cash flow stood at $948.7 million, up from $764 million in the previous quarter. It announced its Q2 results on August 2, ending the quarter with $58.7 million available in cash and cash equivalents, with total assets worth over $11 billion.
In February 2022, Extra Space Storage Inc. hiked its quarterly dividend by 20% to $1.50 per share. This was the company’s 12th consecutive year of dividend growth. It has a 5-year dividend CAGR of 8.7% and a payout ratio of 73%. As of August 7, the stock’s dividend yield was recorded to be at 3.04%.
In June, JPMorgan upgraded Extra Space Storage Inc. to Overweight, with a $193 price target. The firm believed that the company is expected to generate above-average net operating income growth for the REIT sector.
As per Insider Monkey’s Q1 2022 database, 29 hedge funds owned $327.6 million worth of stakes in Extra Space Storage Inc.. In the previous quarter, 27 hedge funds held positions in the company, with stakes valued at over $252.4 million.
2. The Clorox Company (NYSE:CLX)
Dividend Yield as of August 7: 3.40%
Years of Consistent Dividend Growth: 50
An American manufacturing company, The Clorox Company (NYSE:CLX) has been raising its dividends consistently for the past 50 years. The company pays a quarterly dividend of $1.18 per share, which was raised 1.7% in July. The stock’s dividend yield stood at 3.40%, as of August 7.
The Clorox Company has experienced solid earnings over the years, generating $945 million in free cash flow in FY21. The company’s operating cash flow for the fiscal year came in at over $1.27 billion. In its fiscal Q4 2022, the company had $183 million in cash and cash equivalents with total assets of over $6 billion.
In August, Credit Suisse lowered its price target on The Clorox Company to $130 because the company is faced with supply chain issues due to the ongoing political tensions. However, the firm maintained its Overweight rating on the stock.
As of the end of Q1 2022, 26 hedge funds tracked by Insider Monkey reported owning stakes in The Clorox Company, down from 39 in the previous quarter. The collective value of these stakes is roughly $570 million. Renaissance Technologies was the company’s largest stakeholder in Q1.
1. 3M Company (NYSE:MMM)
Dividend Yield as of August 7: 4.04%
Years of Consistent Dividend Growth: 64
A Minnesota-based multinational manufacturing corporation, 3M Company (NYSE:MMM) reported an operating cash flow of $1.2 billion in Q2 2022, up from $1 billion in the previous quarter. The company’s free cash flow came in at $743 million, compared with $587 million in the preceding quarter. It paid 83% of its net income in dividends during the quarter, amounting to over $800 million.
3M Company pays a quarterly dividend of $1.49 per share. The company has a 64-year track record of consistent dividend growth and a 5-year dividend CAGR of 5.38%. As of August 7, the stock’s dividend yield stood at 4.04%.
At the end of Q1 2022, 51 hedge funds owned stakes in 3M Company, up from 41 a quarter earlier, as shown by Insider Monkey’s database. The stakes owned by hedge funds hold a collective value of over $1.5 billion.
You can also take a look at Jim Cramer Recommends These 10 Stocks For Recession and Michael Burry is Buying These 10 Stocks As Recession Fears Mount.
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This article is originally published at Insider Monkey.
