3 Dividend Growth Stocks That Raise Their Payouts at Higher Rates Than Inflation

David Jagielski, The Motley Fool

Sat, Jan 11, 2025, 1:45 AM 4 min read

If you're looking for a top dividend stock to own, you want to be sure to consider whether it increases its payout and keep track of how quickly it normally does so. The rate of increases can be key to ensuring that inflation isn't eating up your dividend income over time. It also demonstrates to investors just how committed the company is to increasing the dividend.

Three stocks that pay dividends and have been among the most generous when it comes to raising their payouts include UnitedHealth Group (NYSE: UNH), Broadcom (NASDAQ: AVGO), and Costco Wholesale (NASDAQ: COST). Here's why these three dividend payers can be ideal income-generating investments to buy and hold right now.

1. UnitedHealth Group

Health insurance giant UnitedHealth Group pays investors a dividend that yields 1.6%. That's not a whole lot higher than the S&P 500 average of 1.3%, but the value in holding the dividend stock is for its growth.

UnitedHealth is a growing business that benefits from more people using its health insurance and from expansion and acquisitions. The company's profit margin is less than 4%, but it has generated nearly $390 billion in revenue over the trailing 12 months, which adds up to more than $14 billion in profit.

Over the past decade, the company has aggressively grown its quarterly per-share dividend from $0.375 back in 2014 to $2.10 today. That's an increase of 460%, which averages out to an annual bump of around 19%, well above even the elevated inflation rates seen over the past couple of years. It's a staggering amount, and with a payout ratio of just 52%, there's still room for the healthcare company to continue making generous increases in the future.

2. Broadcom

Investors have been bullish on Broadcom due to its opportunities in the semiconductor space, but it also doubles as a fantastic dividend stock. As with UnitedHealth, its yield looks fairly unimpressive at just 1.2%. However, if not for Broadcom stock's fantastic 120% rally over the past 12 months, that yield would be a whole lot higher right now.

Last month, Broadcom raised its dividend by 11% to $0.59 per quarter. A decade ago, the company was paying just $0.035, and the tech company has aggressively boosted its payout by nearly 1,600% during that stretch. That averages out to 33% per year. This has clearly slowed down, as evidenced by the most recent increase, but it's still a testament to the company's focus on dividend growth.

Broadcom's plentiful growth opportunities due to artificial intelligence and hyperscalers investing heavily in their operations make it probable that this will continue to be a solid dividend growth stock for the foreseeable future.

3. Costco Wholesale

Rounding out this list of impressive dividend growth stocks is Costco Wholesale. The big-box retailer's yield of 0.5% makes its payout the lowest on this list. However, Costco has not only grown its dividend at a fast rate over the years but also occasionally rewarded its shareholders with special dividend payments, which can sometimes significantly boost their dividend income.

The company last paid a special dividend of $15 per share back in January 2024. No such dividend is coming this month, but investors are still likely to see an increase in the payout later this year. Costco's current quarterly per-share dividend of $1.16 has risen by 227% from the $0.355 it was paying in late 2014, averaging an annual increase of a little under 13%.

Costco has continually grown its sales and profits, which is a good sign that the business is doing well and that its dividend can continue rising. In the quarter that ended Nov. 24, 2024, Costco's comparable-store sales rose by more than 5%, and e-commerce was particularly strong at 13%. For dividend-focused investors, this remains a top income stock to hold over both the short and long term.

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Costco Wholesale. The Motley Fool recommends Broadcom and UnitedHealth Group. The Motley Fool has a disclosure policy.

3 Dividend Growth Stocks That Raise Their Payouts at Higher Rates Than Inflation was originally published by The Motley Fool

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