A lot is happening in the stock market right now. The New Year is approaching, and the U.S. government is preparing for new leadership. Meanwhile, the broader market has begun selling off after a remarkable run since the beginning of 2023. Nobody knows what stock prices will do in the short term, but times like this should excite dividend investors who are willing to buy high-quality stocks at lower prices.
Buying and holding industry-leading companies that pay and raise dividends is a proven path to building wealth. Remember, a company needs consistent and profitable growth to pay shareholders increasingly larger dividends. They are a cash expense for a business -- there's no faking them over the long term.
These four blue chip dividend stocks are worth buying for their dividends today and pack significant growth potential for the future. Consider investing in them as potential January buys to grow your dividend income.
1. Bank of America
This megabank has thrived over the past few years in an economy featuring solid growth and higher interest rates. Famed investor Warren Buffett recently trimmed his stake in Bank of America(NYSE: BAC), but it's still Berkshire Hathaway's third-largest holding at 11.3% of the portfolio, so I don't think it's a huge concern. The company has paid and raised its dividend for 11 consecutive years, and the current payout ratio is only 32% of its estimated 2024 earnings.
Additionally, analysts estimate Bank of America will grow earnings by an average of 10% annually for the next three to five years, which could translate to double-digit dividend increases. That growth, combined with a 2.3% yield at its current price, makes Bank of America a solid dividend growth stock for the long term.
2. Aflac
Supplementary insurance giant Aflac(NYSE: AFL) sells insurance in the United States and Japan for various situations where a primary insurance policy isn't enough. For example, you can get short-term disability insurance that provides income if you cannot work due to an illness or injury. The stock flies under the radar but continues to enrich its shareholders. Aflac has raised its dividend for 42 consecutive years and shows no signs of slowing down.
Aflac's most recent increase was a whopping 16%, which speaks volumes about the positive path management believes the business is on. The dividend is only 27% of 2024 earnings estimates, and analysts believe the company will grow by nearly 7% annually over the long term. The stock yields only 1.9% today, but consistent inflation-beating growth should compound over a long holding period.
3. CME Group
Most people probably aren't familiar with CME Group(NASDAQ: CME), a financial sector power player that operates behind the scenes. CME Group owns and operates four exchanges in the financial markets, including the Chicago Mercantile Exchange, where traders buy and sell financial derivatives on almost anything, ranging from commodities to interest rates.
The company is very profitable. It turns over 60% of its revenue into free cash flow to fund a quarterly dividend it has raised 14 years (and counting), plus an additional special dividend it pays out once annually. Analysts believe CME Group will continue to grow earnings by an average of 5% annually, which adds nicely to the stock's 4.4% yield (including the special dividend).
4. Visa
Payment networks like Visa(NYSE: V) connect people to the merchants where they spend their money. The company collects a small fee each time someone swipes their Visa-branded credit or debit card. Visa is highly profitable because it only facilitates payment and doesn't hold loans like American Express. Therefore, Visa converts an impressive 52% of its revenue into free cash flow. The company has paid and raised its dividend each year since going public, a streak of 16 years with room to continue.
The stock only yields 0.74%, but it's poised for years of double-digit increases thanks to a 21% payout ratio (of 2024 earnings estimates) and anticipated 13% annual earnings growth over the next three to five years. Visa is such a good business that regulators are suing the company over its dominance. Investors should monitor that situation, but it shouldn't keep you from owning this dividend growth rockstar until you have a more definitive reason not to do so.
Should you invest $1,000 in Bank of America right now?
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Bank of America is an advertising partner of Motley Fool Money. American Express is an advertising partner of Motley Fool Money. Justin Pope has positions in CME Group and Visa. The Motley Fool has positions in and recommends Bank of America, Berkshire Hathaway, and Visa. The Motley Fool recommends CME Group. The Motley Fool has a disclosure policy.
