We recently compiled a list of the 10 Best Dividend Growth Stocks to Buy and Hold Now. In this article, we are going to take a look at where S&P Global Inc. (NYSE:SPGI) stands against the other dividend growth stocks.

The AI sector maintained its momentum unabated in the second quarter of 2024, with tech stocks continuing to lead the charge. Despite the Fed scaling back rate cut expectations from three to one at the quarter’s outset, stocks surged to end in positive territory by quarter-end. This was buoyed by better-than-expected inflation numbers and strong first-quarter earnings. The broader market gained 3.48% in Q2 2024 and its 12-month returns came in at over 23.4%. Dividend stocks underperformed the broader market recently, but with tech giants now beginning to issue dividends, analysts are optimistic about dividend prospects this year. The recent addition of Alphabet to the dividend-paying group suggests that these mega-cap tech companies could increase their dividends gradually over time. However, analysts caution that current dividend yields from these stocks remain relatively modest.

In the current market environment, investors are keenly exploring opportunities to boost their income. Despite their low performance so far this year, dividends gain importance in this regard as they have historically been crucial in generating returns for investors over many decades. Since 1960, approximately 85% of the total cumulative return of the S&P 500 Index can be traced back to reinvested dividends and the compounding effect they offer.

When we talk about the compounding effects of dividends, we refer to the advantages they provide, particularly when they grow consistently over time. This growth allows for larger dividend payouts which, when reinvested, can further accelerate the overall investment return through compounding. In addition to providing compounding effects, companies that raise their dividends have also historically outperformed the market and those companies that cut or don’t pay dividends at all. According to data by Ned Davis Research and Hartford Funds, dividend growers and initiators have delivered a 9.62% return to shareholders from 1972 to 2018, compared with an 8.78% return of dividend payers. Dividend growers also outperformed dividend non-payers, who returned only 2.40% during this period. Read more about dividend growers in our article, Best Dividend Kings to Buy for Safe Dividend Growth.

A company’s past track record of growing dividends is often the best crystal ball for predicting future growth. A low payout ratio, which measures dividends against earnings, also signals potential for future dividend growth. High dividend yields can falter in tough times, precisely when investors rely on them most. Companies with a history of dividend growth demonstrate their resilience, continuing to increase dividends even in downturns. Currently, there is rising demand for companies that distribute dividends, driven by an aging US population, seeking additional sources of immediate income. According to a report by Janus Henderson, global dividends reached $1.66 trillion in 2023, growing from $1.23 trillion in 2020. The banking sector achieved record-high dividends last year, accounting for half of the global dividend growth. This increase was largely facilitated by a higher interest rate environment, which allowed many banks to expand their profit margins. The firm expects global dividends to reach their all-time high of $1.72 trillion in 2024, which would show a 3.9% growth from 2023 on a headline basis.

Companies that consistently raise their dividends have strong business models and solid balance sheets. In this article, we will take a look at some of the best dividend aristocrat stocks for dividend growth.

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 first 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).

S&P Global Inc. (NYSE:SPGI)

5-Year Annual Dividend Growth Rate: 11.09%

S&P Global Inc. (NYSE:SPGI) is a New York-based capital market company that mainly provides services in financial information and analytics. The company remained popular among elite funds in the first quarter of 2024 as hedge fund positions in the company jumped to 97, from 82 in the previous quarter, according to Insider Monkey’s database. The stakes held by these hedge funds have a consolidated value of over $9.5 billion.

Establishing a presence in the credit ratings industry is challenging due to regulatory requirements and high barriers to entry. In addition, building a strong reputation and earning the trust of investors takes considerable time. S&P Global Inc. (NYSE:SPGI) currently dominates this industry, benefitting from a strong economic moat that ensures stability and consistent cash flows for the company. Its trailing twelve-month (TTM) free cash flow is approximately $4 billion, significantly outpacing its competitor Moody’s, whose TTM free cash flow amounts to just $2 billion.

Analysts are giving a positive outlook for the credit ratings industry, rebounding from a decline it suffered in 2022. S&P Global Inc. (NYSE:SPGI) finalized a $44 billion all-stock acquisition of IHS Markit that year, significantly broadening its information and analytics capabilities. While this move expanded the company’s market presence, it also impacted the company’s return on invested capital. In addition, the continued hikes in interest rates during this period also put additional pressure on the stock price. However, conditions have begun to improve. In the first quarter of 2024, the company observed the highest level of debt issuance since 2021.

Oppenheimer presented a bullish outlook on the capital markets sector in July. The firm expects the sector to outperform in the coming quarters. The firm maintained a Buy rating on S&P Global Inc. (NYSE:SPGI). On June 24, the company announced that Martina Cheung, currently serving as the president of S&P Global Ratings, will succeed Douglas Peterson as president and CEO, starting November 1, 2024. The stock is up by over 2.2% since the start of 2024.

S&P Global Inc. (NYSE:SPGI) has been growing its dividends for the past 51 years and in the past five years, it has raised its payouts at an annual average rate of over 11%. The company pays a quarterly dividend of $0.91 per share and has a dividend yield of 0.82%, as of July 2.

Overall SPGI ranks 6th on our list of the best dividend growth stocks to buy and hold. You can visit 10 Best Dividend Growth Stocks to Buy and Hold Now to see the other dividend growth stocks that are on hedge funds’ radar. While we acknowledge the potential of SPGI as an investment, our conviction lies in the belief that some deeply undervalued dividend stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued dividend stock that is more promising than SPGI but that trades at less than 7 times its earnings and yields nearly 10%, check out our report about the dirt cheap dividend stock.

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Disclosure: None. This article is originally published at Insider Monkey.