Dividend growth stocks, which have a history of increasing their payouts over time, have a lot going for them, Susan Dziubinski, director of content for Morningstar.com, wrote in a blog post last week.
The management teams at these companies focus on delivering a growing cash stream to their shareholders, Dziubinski wrote — “and income is a key component of total return. That’s a shareholder-friendly mindset.”
She added that companies that consistently increase their dividends are usually profitable and in financial good health, which are valuable qualities during a market downturn.
Another point: Dividend-growth stocks provide some inflation protection, a boon to retirees in particular. “Income-focused investors receive a little ‘raise’ when a company increases its dividend,” Morningstar director of personal finance Christine Benz said in the post.
Given their multipurpose role, dividend-growth stocks are suitable for almost any type of investor, according to Dziubinski. She noted that Morningstar’s chief U.S. markets strategist David Sekera expects dividends to grow in line with earnings in 2022.
Stocks to Investigate in 2022
Morningstar analysts looked at the top constituents of the firm’s US Dividend Growth Index, which focuses on companies with a history of dividend growth and an ability to maintain it, to identify some dividend-growth stocks for investors to investigate further.
The index includes U.S.-based securities that pay qualified dividends and have increased their dividend payments over the past five years.
As a gauge of the durability of their dividend growth into the future, eligible constituents must display positive consensus earnings forecasts from the analyst community and must also pay out no more than 75% of their earnings in the form of dividends.
Constituents are weighted in proportion to the total pool of dividends available to investors.
See the gallery for seven undervalued stock with growing dividends, according to Morningstar.