There are a lot of different ways to invest. But I’d argue the best way to invest is to employ the dividend growth investing strategy.
This strategy is all about buying and holding shares in world-class businesses that pay reliable, rising dividends. Those reliable, rising dividends are funded by reliable, rising profits.
So how do you consistently produce and consistently grow profit? Well, by running a high-quality business. You can’t run a terrible business and simultaneously produce gobs of growing profit. It doesn’t work like that.
By its very nature, dividend growth investing funnels you right into some of the best businesses on the planet. And when you invest in high-quality businesses, you tend to get high-quality results over the long term.
Not only that, but those reliable, rising dividends are an awesome source of totally passive income.
If one can build up a large enough portfolio of high-quality dividend growth stocks, they could potentially live off of only the growing dividends these stocks generate. That’s exactly what I’ve done.
I used dividend growth investing to go from below broke at age 27 to financially free at 33.
By the way, I explain exactly how I achieved financial freedom in just six years in my Early Retirement Blueprint. If you’re interested, you can download a free copy of my Early Retirement Blueprint here.
As powerful as dividend growth investing is, though, not every dividend growth stock is a good buy at every time. Focusing on the very best long-term ideas right now is what this video is all about.
Today, I want to tell you my top five dividend growth stocks for June 2022. Ready? Let’s dig in.
My first dividend growth stock pick for June 2022 is Bank of New York Mellon (BK).
Bank of New York Mellon is a global financial services company.
Bank of New York Mellon’s corporate history can be traced back to 1784. It’s almost as old as the United States itself. One of its founders was Alexander Hamilton – a founding father of the USA. If they haven’t proven their durability by now, I’m not sure what else you’d need to see. It’s been around for centuries. But with over $46 trillion in assets under custody and administration, this company is almost guaranteed to be around for centuries more.
The bank’s revenue sports a CAGR of only 1.3% over the last decade. Low rates, muted global growth, and a pandemic didn’t help. However, EPS grew at a compound annual rate of 10.2% over that period. Even with limited revenue growth, the bank can still put up solid bottom-line growth. Now just imagine what they could do with better revenue growth, especially with rates rising?
The environment we’re entering is very favorable for this bank and its dividend.
They’ve increased the dividend for 11 consecutive years, with a 10-year DGR of 10.5%. So we’re talking about double-digit dividend growth here during a very challenging environment. With rates rising, which will benefit their massive asset base, what do you think we’ll be looking at over the next 10 years? My point exactly. While you wait for that to play out, the stock offers a nice yield of 2.9%. And since the payout ratio is only 32.9%, this dividend has a ton of room for growth from both a payout ratio expansion and a better operating environment for EPS growth.
Despite the positioning for a more advantageous paradigm, the stock is cheeeeeeap.
Every single valuation metric indicates this. The P/E ratio is just 11.5. And I think that’s higher than it appears to be, as EPS should be even higher in the coming quarters. The P/B ratio is 1. That’s below its own five-year average of 1.2, which in and of itself is rather low. Our recent full analysis and valuation video on this bank showed why it could be worth about $51/share.
Shares are currently trading hands for less than $47/each. Through his conglomerate Berkshire Hathaway Inc., Warren Buffett owns more than $3 billion worth of this bank. In my view, now’s a good time to consider being a shareholder of Bank of New York Mellon alongside the Oracle of Omaha.
My second dividend growth stock pick for June 2022 is Gilead Sciences (GILD).
Gilead is a biopharmaceutical company.
Healthcare is one of my favorite industries of all. Demand is inelastic. What that means is that demand doesn’t change as much as the price. Even when prices rise, demand doesn’t get automatically destroyed. That’s because we’re talking about life-saving and life-improving treatments here. You’re not going to quibble about price when your health is on the line. This is why it’s not a surprise to see fairly strong results out of Gilead over the last decade. Revenue has compounded at 12.2% annually, while EPS has compounded at 13% annually over that period.
Big growth in profit. Big growth in the dividend.
Gilead has increased its dividend for eight consecutive years. The five-year DGR is 9.1%. On top of that, the stock offers a market-smashing 4.5% yield. It’s pretty tough to complain about a 4.5% yield and near-double-digit dividend growth. You don’t get that kind of combination of yield and growth every day. And with the payout ratio at 59.2%, the dividend is easily covered and highly likely to continue growing at a strong pace.
This stock has been unloved for years. And I think that’s led to a rather attractive valuation.
Gilead has been steadily advancing the business for years. Yet the stock is priced the same as it was in 2013. Almost 10 years ago. Maybe you didn’t have an attractive valuation nine years ago. But with Gilead pumping out higher revenue, more profit, and a bigger dividend today, I’d argue you certainly have an attractive valuation now. We recently put together a full analysis and valuation video on the company, showing why its shares could be worth nearly $75/each. With the stock currently priced below $65, there’s some nice upside potential here.
My third dividend growth stock pick for June 2022 is Lowe’s (LOW).
Lowe’s is a large home improvement retailer based in the United States.
I love this business. It caters to the American Dream, part and parcel of which is homeownership. And guess what homeownership involves? Plenty of upkeep. That means a lot of trips down to the ol’ home improvement store. And since there are only two major home improvement players in the US, one of which is Lowe’s, they’re going to do plenty of business over the coming decades. When we look at the last decade of top-line and bottom-line growth, we can see just how successful they’ve been. Revenue has a CAGR of 7.4%, while EPS has a CAGR of 24.4%.
This company is showing no signs of slowing, which bodes very well for the dividend.
And that’s actually an incredible thing to say, as Lowe’s has already increased its dividend for 60 consecutive years. Imagine growing your dividend for six straight decades and not showing any signs of slowing. It’s so impressive. Indeed, the 10-year DGR is 18.8%. Very strong. But wait. There’s more. This Dividend Aristocrat just announced a dividend increase of 31.3%. No slowing here. Only acceleration. This most recent dividend increase has driven the stock’s yield up to 2.1%, which is very respectable when you’re getting this kind of monstrous dividend growth. And the payout ratio is still at only 34.0%.
This is one of the highest-quality Dividend Aristocrats out there. And I think the valuation is better than fair.
Is it the cheapest stock in the market? No. But you tend to get what you pay for. If you want a diamond, you don’t pay a cubic zirconia price. That said, I actually think this stock is undervalued by numerous measures. In fact, we recently published a full analysis and valuation video on Lowe’s. In that video, I estimated intrinsic value for the business at right about $240/share. However, we put this video together before Lowe’s increased their dividend by more than 30%. So I think the equity is that much more attractive. I think now is a very good time to consider adding this high-quality Dividend Aristocrat to a portfolio.
My fourth dividend growth stock pick for June 2022 is Qualcomm (QCOM).
Qualcomm is a multinational technology corporation.
Qualcomm is almost everywhere you want to be in tech right now. The company holds virtually all essential patents used in 3G, 4G, and 5G networks. Because of this, Qualcomm collects royalty income on the majority of 3G, 4G, and 5G handsets sold worldwide. And they’ve taken that lucrative foundation and added to it exposure to some of the most exciting trends in all of technology – broadband, modern RF systems, gaming, IoT, self-driving autos, AI, and AR/VR. Qualcomm has increased its revenue at a CAGR of 6.5% and its EPS at a CAGR of 9.4% over the last decade, and I think they’re only getting warmed up.
That goes for the dividend, too. It’s a great dividend that’s just getting warmed up.
The company has increased its dividend for 20 consecutive years. That’s a pretty lengthy track record. But what makes it particularly impressive in this case is the fact that we’re talking about a tech company. 20 years is a very, very long time in the tech space. Qualcomm has proven itself in the dividend department.
The 10-year DGR is 12.5%, which easily beats inflation and is nearly as impressive as the lengthy track record. Meantime, the stock also yields a market-beating 2.2%. So you’re beating the market on yield and beating inflation on growth. And I see a lot more dividend growth coming in the future, as the payout ratio is only 30.7%.
This stock, like almost every tech stock, has been hammered this year. That has created a fantastic long-term opportunity.
As I always say, short-term volatility is a long-term opportunity. And Qualcomm’s stock is a shining example of that. The stock is down 25% this year. Well, that could be a great time to strike. Because 20 years from now, you won’t be thinking about the 25% drop the stock started off 2022 with. That kind of drop barely shows up on a 20-year chart. Instead, you’ll likely be thinking about how much wealth and passive income you’ve built with Qualcomm over two decades.
We have a full analysis and valuation video coming up on Qualcomm. That should go live soon. In that video, I estimate intrinsic value for the business at $161.67/share. Shares are currently selling for less than $140/each. In my view, there’s a favorable disconnect between price and value here. It would behoove you to think about taking advantage of it.
My fifth dividend growth stock pick for June 2022 is United Parcel Service (UPS).
United Parcel Service is a multinational shipping & receiving and supply chain management company.
UPS is sometimes referred to as “Big Brown”, which refers to the famous color of their ubiquitous trucks. Well, I’d submit that the company ought to be referred to as “Big Green” – as in money. Because this company continues to print it by being positioned to benefit from rising global consumption and increasing e-commerce sales. I can’t see any future in which less packages will need to be delivered. And that means a brighter future than the past. By the way, the past has been very good. This company compounded its revenue at 6.7% and its EPS at 34.7% over the last decade.
Big brown trucks. Big green dividends.
UPS has increased its dividend for 13 consecutive years, with a 10-year DGR of 7%. That’s solid. But if their most recent dividend increase of nearly 50% is any indication, shareholders can look forward to dividend growth acceleration. And that comes along with the stock’s 3.3% yield, which blows away what the market offers. Also, the payout ratio of 49.7% gives you almost a perfect balance between retaining earnings for growth and returning cash to shareholders.
The 14% pullback to start the year has created what might be a small window of opportunity.
This stock has been on a tear during the pandemic. It’s up more than 50% compared to where it was in January 2020. But a pullback this year has led to a more favorable valuation. We’re putting together a full analysis and valuation on the business. It just has to be edited. Should be up on the channel soon. In the meantime, I can tell you that my estimate of fair value on UPS came out to about $214/share.
Shares are currently going for less than $183/each. Significant undervaluation? Maybe not. But I think there’s a margin of safety here on a great business that is poised to continue benefiting from more point-to-point shipping and global consumption over the coming years. Take a close look at UPS, if you haven’t already.
— Jason Fieber
P.S. If you’d like access to my entire six-figure dividend growth stock portfolio, as well as stock trades I make with my own money, I’ve made all of that available exclusively through Patreon.
The goal? To build a reliable, growing income stream by making regular investments in high-quality dividend-paying companies. Click here to access our Income Builder Portfolio and see what we’re buying this month.