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My Top 5 Best Dividend Growth Stocks (2018 Update)

My Top 5 Best Dividend Growth Stocks (2018 Update)

Last Update: May 21st 2019 / by Marco Schwartz

Choosing the stocks to put in your portfolio is the most important part of building a solid passive income coming from dividend growth stocks. However, this can sometimes be a difficult process, especially if you are starting out in the field.

With that in mind, I wanted to share with you my top 5 dividend growth stocks of the moment, so you can just skip the process of selecting stocks and use this list to get started. For each of those stocks, I'll tell you why I chose it, and why I think it's a good addition to any dividend growth portfolio. Of course, all the numbers used in this article were taken at the date it was written. Also make sure to visit this article regularly as I update it when this list changes!

IBM

The first stock that I usually recommend is IBM. I love the technology sector - and IBM is definitely a company that not only has been there for decades, but that also still innovates with projects like Watson (artificial intelligence) and the Internet of Things. 

The numbers are also great - a yield of nearly 4%, 10% of dividend growth over the past 5 years, and an impressive track record of growing dividends non-stop for the past 18 years. That's one of the largest position in my portfolio - and I never miss a chance to add more of it when I am reinvesting in my dividend growth stocks. 

Realty Income (O)

The second company that I always recommend, especially to new investors, is Realty Income. This company is a REIT (Real Estate Investment Trust) that mainly invests in commercial real estate, with well-known tenants like CVS.

At the time this article was written, it had a 5% yield, 23 years track record of paying dividends, and a nice 5% growth of the dividend over the past 10 years. The really nice thing is that they also pay the dividend monthly - which means it's actually really close to a real estate investment, without all the hassle that comes with it.

Pfizer (PFE)

The largest company in the world in the pharmaceutical sector, Pfizer is often a great addition to a dividend growth portfolio. I own some position in their competitor Johnson & Johnson as well, but at the moment this article was written Pfizer was a much better investment.

The numbers are definitely here to support that: a yield at nearly 4%, more than 7% of growth of the dividend over the past 5 years, and 46 years straight of dividend distributions. They also have an excellent payout ratio of less than 50%, meaning it's a very healthy company that should continue paying dividends in the future.

Target (TGT)

It can be strange to see Target on this list as the whole retail sector is falling down at the moment, but it's still an excellent dividend paying stock and the recent strategic acquisitions of Target really confort me into recommending this company.

It has an excellent yield of 3.6%, 11.4% of dividend growth over the past 5 years, and a payout ratio under 50%. The dividend discount model (DDM) also indicates that the stock is strongly undervalued at the moment.

CVS Health Corporation (CVS)

The last stock of this list is CVS Health, a well-known chain of pharmacies present all around the US. It's also quite a 'classical' company like Target, but the numbers are excellent: a strong 3.3% yield, an excellent payout ratio of 33%, and especially a 17% growth of the dividend over the past 5 years. The DDM also tells us that the stock is undervalued at the moment, at nearly half the price of what it should be! That's a stock that will really do great in any dividend growth portfolio.

That's all for the list - I really hope that it will help you to either start your dividend growth portfolio or to add more positions in your existing portfolio. As I mentioned earlier, I often update this post so don't hesitate to come back to it in the future!

Learn How to Invest in Dividend Paying Stocks!

Investing in dividend paying stocks is a great way to create a passive income generating portfolio using your hard earned money. However, selecting the right stocks for your portfolio can be tricky. That's why I created a simple checklist that I personally use to select the best dividend paying stocks. Simply click on the button below to get it for free!    

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Ivan 6 months ago
I recently sold my europian divident stoxx 30 etf. Because of drop of its value, divident received could not compensate that at all. So it might work out the same if I buy US divident stocks. Secondly don't you think that massive tax obligation for divident profits first in US - from the issuer and then in my country is going to eat more than 30 percent of the yield ?
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Marco Schwartz Ivan 5 months ago

Hi, I think you should actually not look too much at the value of the stocks or ETFs, but only at the dividend. If it keeps growing, doesn't matter if the value if fluctuating :) For your second question, in most countries you can deduct the 15% tax from the US on dividends on your own country taxes, therefore only paying 15% of tax at the end.