I’ve been living off of dividends since 2016. It’s great. But there’s a big caveat to the idea of just “living off of dividends”.

You shouldn’t do it. Say what? See, here’s the thing. You should be living off of growing dividends. What’s the big buzzword of 2022? Inflation. It’s the big, bad boogeyman, right?

Well, if you live off of static dividend income, inflation will eat your purchasing power alive.

This is why it’s so important to be invested in high-quality businesses that pay reliable, rising dividends.

It’s critical that your dividend income grow at least as fast as inflation, which protects, or even increases, your purchasing power.

Today, I want to tell you about six dividend growth stocks that just increased their dividends. Ready? Let’s dig in.

The first dividend increase I want to tell you about is the one that was announced by American States Water (AWR).

American States Water just increased their dividend by 8.9%.

So we know that the inflation rate in the US is stubbornly high, in the 8% to 9% range, although it’s expected to come down meaningfully in the months ahead. In this environment, if your income isn’t growing by 8% to 9% YOY, you’re in trouble. Inflation is this thing that sneaks up on you and tackles you from behind. But when you’ve got a company like American States Water increasing your passive dividend income by nearly 9%, you get to avoid that. All good. But what’s even better about American States Water is the unparalleled reliability of their growing dividend.

This is the 68th consecutive year in which the water and electricity utility company has increased its dividend.

There is no company out there that has done it longer than American States Water. That’s the longest track record of consecutive annual dividend increases in the world. The 10-year DGR is 9.8%, so we’re pretty much right on target here. However, for as much as you get in reliability and inflation-beating dividend growth, you give up somewhat in the form of yield. The stock only offers a yield of 1.8%.

Now, that is above its five-year average yield of 1.6%. Market participants have recognized the value of this level of reliability, and the stock has typically seen a valuation premium, which has the effect of lowering the yield. But with a payout ratio of 66%, I expect American States Water to continue doing what it’s been doing for nearly 70 straight years.

Is the stock cheap? No. But why should it be?

As I’ve said many times before, you don’t get a diamond for the price of a cubic zirconia. A lot of cheap, high-yield stocks out there have been total dogs for years. Meantime, this stock has been terrific, compounding at 18% annually over the last decade – that would have quintupled an initial $1,000 investment into more than $5,000 today. The business continues to churn out higher profits like clockwork, which has, in turn, allowed them to increase the dividend like clockwork.

This is the kind of stock that can be one of the crown jewels of a portfolio. The P/E ratio of 36.2 is, again, not inexpensive. But it’s also not that far off from its own five-year average of 35.2. The market has rightfully awarded the business a premium valuation. If there’s a pullback in this all-star dividend growth stock, consider taking advantage of that.

The second dividend increase we have to quickly talk about is the one that came in from Cullen/Frost Bankers (CFR).

Cullen/Frost just increased their dividend by 16%.

Inflation is getting a lot of press. Big whoop. Who cares about inflation when your dividend income is growing by a rate that’s almost twice as high? This is the kind of stuff that makes dividend growth investing so special, rewarding, and wonderful. What makes this dividend increase from Cullen/Frost especially awesome is that it’s bigger than usual for the firm, and what a great time for them to come through once again.

This marks the 29th consecutive year of dividend increases for the Texas-based bank holding company.

They say everything is bigger in Texas. Well, with a 16% dividend increase from this Texas bank, I’m obliged to agree. Now, what’s fascinating here is that, as I just foreshadowed, this dividend increase was particularly impressive – their 10-year DGR is 4.9%. But management clearly sees the environment and decided to step up. You’ve gotta love that. The stock now yields a respectable 2.7%, which easily beats the market. With the payout ratio at a moderate 53.5%, the dividend, even at this higher rate, is easily covered and looks quite safe.

The only thing I don’t like about this stock? The valuation.

It’s tough to have it all. Cullen/Frost has been silky smooth for years. Pretty much relentless with their top-line and bottom-line growth. But that spectacular stewardship of the business does come at a heavy cost. Pretty much every basic valuation metric I look at is running higher than its respective recent historical average.

That includes the P/E ratio, which, at 20.1, is measurably higher than its own five-year average of 16.4. And the P/B ratio – a common metric for banks – is sitting at 2.6. That’s heavy. Its own five-year average is 1.8, which, in and of itself, is actually a tad high. It’s a great bank doing great things. But I’d like to see the stock closer to the $100 mark before buying.

Next up, let’s have a conversation about the dividend increase that came courtesy of Cummins (CMI).

Cummins just increased their dividend by 8.3%.

Notice a trend yet? Inflation-matching or inflation-beating dividend raises across the board here. This is what world-class businesses do. They appreciate and reward their shareholders, showering them with more money. They grow their dividends at levels that match or beat inflation, which helps to protect, or even increase, that purchasing power. And when inflation starts to roll over and fall, which I think is inevitable, these companies will still be handing out these generous dividend increases. This is what makes dividend growth investing such a powerful long-term investment strategy. By the way, nothing surprising here. Cummins has been doing it for years.

The engine and power distribution company has increased its dividend for 17 consecutive years.

Nearly two straight decades of handing out ever-bigger dividends to shareholders. In a world where people have a hard time focusing on something for more than 60 seconds, I do love that kind of long-term commitment. The 10-year DGR is 15.5%, which is monstrous, but the dividend growth rate has been kind of floating in the high-single-digit range for several years now. So I think this is right on target for Cummins. The stock’s yield is now a competitive, market-beating 2.8%, which is right in line with its own five-year average. A low payout ratio of 46.7% sets Cummins up to continue handing out generous dividend increases for years to come.

In my view, this is an attractively valued, high-quality dividend growth stock.

We covered Cummins in a full analysis and valuation video back in the spring. In that video, the estimate of the firm’s intrinsic value came out to about $255/share. The stock is currently sitting at about $221. I see some pretty decent upside here on a great, great business. It’s been a while since we’ve highlighted Cummins, and it is due for coverage again, especially after this nice dividend increase. Meanwhile, don’t forget about this world-class industrial company.

The fourth dividend increase I have to bring to your attention is the one that was announced by Hershey (HSY).

Hershey just increased their dividend by 15%.

Here we go with another dividend increase that nearly lapped the inflation rate. Hershey sells plenty of sweet products. And they continue to hand out very sweet dividend increases. I might have to be a bit judicious when it comes to consuming their various products, but I’m more than happy to eat up these dividend increases.

This is the 13th consecutive year of dividend increases for the multinational chocolate and snack company.

With inflation causing the rising of prices across the board, Hershey’s products will also rise in price. This causes nominal growth across the company, and Hershey is sharing the good fortune with its shareholders. The 10-year DGR is 9.5%, so this most recent dividend increase was a pleasant surprise. The stock now yields 1.8%. While that does beat the market, it trails its own five-year average of 2.2%. But with a payout ratio of 57.9%, I expect Hershey to continue rewarding its shareholders with delicious dividend increases.

The stock does look a bit expensive, but this is one of the best businesses in the world.

The thing with Hershey is, it’s always looked expensive. I could have said the same thing a year ago, three years ago, five years ago, 10 years ago. Indeed, its five-year average P/E ratio is 26, so you can see the premium it usually gets. Yet all Hershey does is compound away like crazy, make its shareholders rich, and hand out sizable dividend increases.

That said, the current P/E ratio of 31.2 is rich, even by Hershey’s lofty standards. Then again, their Q2 report, which showed 19.1% YOY revenue growth and 22.4% YOY adjusted EPS growth, lays out what a wonderful business this is. If a pullback occurs, don’t be afraid to take a very good look at Hershey. As Warren Buffett would say, there’s nothing wrong with paying a fair price for a wonderful business.

Next up, I want to highlight the dividend increase that came from Mondelez International (MDLZ).

Mondelez just increased their dividend by 10%.

Another great business. Another inflation-beating dividend raise. Being a dividend growth investor is the easiest “job” I’ve ever had. Not only is the dividend income more passive than any other income source I could possibly think of, but the dividend increases are the most passive pay raises I could possibly think of. It just doesn’t get any better or easier than this.

The multinational confectionery, snack, and beverage company has now increased its dividend for 11 consecutive years.

Their five-year DGR is 12.5%, so this double-digit dividend increase was par for the course here. And you’re pairing that double-digit growth with a starting yield of 2.4%. Nothing wrong with that kind of combination. A moderate payout ratio of 56% indicates that we have a safe dividend here with plenty of leeway for future growth.

This stock looks buyable to me.

Whereas Hershey’s stock looks expensive to my eye, I see this stock as really quite reasonably valued. Most basic valuation metrics are very close to their respective recent historical averages. A good example is the P/E ratio of 23.6, which is not far off from its own five-year average of 22.4. Also, you’ve got a P/CF ratio of 21.1 that’s barely higher than its own five-year average of 20.3.

Do I think Mondelez is cheap? No. Instead, I think it’s a great business available for a fair price. This latest dividend increase only serves to add further proof of just how great the business is and just how committed the business is to its growing dividend. Take a look at this name.

Last but not least, let’s quickly talk about the dividend increase that was announced by Marsh & McLennan Companies (MMC).

Marsh & McLennan just increased their dividend by 10.3%.

Single-digit inflation met by double-digit dividend growth. This is what you want to see if you’re trying to live off of your dividend income. You want to see your purchasing power growing, even in the face of unusually high inflation. Expenses are rising. Always have been. Always will be. But if your income is rising even faster, you’ve got it made in the shade.

This is the 13th consecutive year of dividend increase for the professional services company.

The 10-year DGR is 8.8%, which is very good but not amazing, especially when you consider that the stock only gives you a lowish yield of 1.8%. However, it must be said that there’s been some recent acceleration in dividend growth. This year’s double-digit dividend increase follows up last year’s 15.1% dividend increase. If that trend continues, shareholders should be very, very happy. And with the payout ratio at only 35.6%, I see no reason why the company can’t make good on that.

This is a terrific business. It should be strongly considered on any pullbacks.

The company has nearly doubled its revenue over the last decade. They nearly tripled their EPS over that time frame. Excellent fundamentals right across the board here. However, all of that does come at a cost. The P/E ratio of 24.4 is a bit rich, although it’s not as rich as it’s typically been – the stock’s five-year average P/E ratio is 28.7. On the other hand, the sales multiple and the cash flow multiple are both well ahead of their respective recent historical averages. The stock’s price is currently $162. Below $150, it starts to get pretty interesting, in my view. Don’t forget about this one.

— 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.

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Source: DividendsAndIncome.com