Dividend growth stocks offer rising dividends, boost yield on cost (YOC) and provide growing income. Ideal for investors seeking steady growth, these stocks also allow reinvesting dividends to compound returns over time.

Hence, income investors might consider investing in strong dividend growth stocks like Elevance Health, Inc. (ELV), Enterprise Products Partners L.P. (EPD), and HP Inc. (HPQ), as their payouts have been increasing for over 10 years.

The mixed U.S. economy creates uncertainty for investors, with fluctuating inflation trends and Fed policies. The economic scenario ahead remains uncertain amid rate cuts and the upcoming presidential election. Amid this landscape, dividend growth stocks offer stable cash flows and low volatility, making them a safer choice.

Moreover, core inflation rose by 0.3% in August 2024, signaling that inflation is stabilizing, which supports more predictable dividend payouts as pressures ease. With the U.S. Consumer Price Index (CPI) slowing and core inflation moderating, the economy could shift toward steady growth, making dividend payers an attractive option for consistent returns in a more stable environment.

Furthermore, dividend growth stocks typically have lower payout ratios, strong balance sheets, and stable cash flows, making them more resilient in economic downturns. Considering these conducive trends, let’s analyze the fundamental aspects of the three dividend stock picks.

Elevance Health, Inc. (ELV)

ELV operates as a health benefits company. The company operates through four segments: Commercial & Specialty Business, Government Business, CarelonRx, and Other. It supports consumers, families, and communities across the entire care journey, connecting to the care, support, and resources to lead healthier lives.

In terms of the trailing-12-month EBITDA margin, ELV’s 6.63% is 1.3% higher than the 6.54% industry average. Likewise, its 1.55x trailing-12-month asset turnover ratio is 275.5% higher than the 0.41x industry average. Its 6.14% trailing-12-month EBIT margin is 122.1% higher than the 2.77% industry average.

ELV has paid dividends for 12 consecutive years.  Its annual dividend is $6.52, which translates to a yield of 1.25% at the current share price. Its four-year average dividend yield is 1.12%. Moreover, the company’s dividend payouts have increased at a CAGR of 13.6% over the past three years.

ELV’s net revenues for the second quarter ended June 30, 2024, increased marginally year-over-year to $43.89 billion. Similarly, the company’s adjusted shareholders’ net income was $2.36 billion, or $10.12 per share, up 9.9% and 11.9%, respectively, compared to the prior-year quarter.

Additionally, as of June 30, 2024, ELV’s total assets stood at $112.99 billion, compared to $108.93 billion as of December 31, 2023.

Street expects ELV’s EPS and revenue for the quarter ending September 30, 2024, to increase 7.9% and 1.6% year-over-year to $9.70 and $43.16 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 16.1% to close the last trading session at $520.28.

ELV’s POWR Ratings reflect strong prospects. It has an overall rating of B, which translates to a Buy in our proprietary system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

It is ranked #3 out of 10 stocks in the A-rated Medical – Health Insurance industry. It has a B grade for Stability. Click here to see ELV’s ratings for Growth, Value, Momentum, Sentiment, and Quality.

Enterprise Products Partners L.P. (EPD)

EPD provides midstream energy services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, petrochemicals, and refined products. It operates in four segments: NGL Pipelines & Services, Crude Oil Pipelines & Services, Natural Gas Pipelines & Services, and Petrochemical & Refined Products Services.

On August 21, 2024, EPD announced it will acquire Piñon Midstream for $950 million in cash. This deal boosts EPD’s natural gas treating operations in the Delaware Basin and is expected to close in Q4 2024.

On July 10, 2024, EPD declared a quarterly cash distribution of $0.525 per unit for the second quarter, a 5.0% increase from the prior year. The distribution will be paid on August 14, 2024, to unitholders of record as of July 31, 2024.

In terms of the trailing-12-month Return on Total Assets, EPD’s 7.82% is 44% higher than the 5.43% industry average. Its 0.78x trailing-12-month asset turnover ratio is 57.6% higher than the 0.49x industry average. Also, its 20.73% trailing-12-month Return on Common Equity is 59.2% higher than the 13.02% industry average.

EPD pays an annual dividend of $2.10, which translates to a yield of 7.27% at the current share price. Its four-year average dividend yield is 7.63%. In addition, the company’s dividend payouts have increased at a CAGR of 4.6% over the past three years. EPD has paid dividends for the past 25 years.

During the second quarter, which ended on June 30, EPD’s total revenues increased 26.6% year-over-year to $13.48 billion. The company’s operating income stood at $1.77 billion, up 11.8% year-over-year. Its net income attributable to common unitholders and earnings per common unit amounted to $1.41 billion and $0.64, representing increases of 12.1% and 12.3% year-over-year, respectively.

For the quarter ending September 30, 2024, EPD’s EPS and revenue are expected to increase 10.12% and 17% year-over-year to $0.67 and $14.04 billion, respectively.  EPD’s stock has gained 10.2% over the past nine months to close the last trading session at $28.88.

EPD’s robust outlook is reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.

Within the A-rated MLPs – Oil & Gas industry, it is ranked #10 out of 23 stocks. It has a B grade for Value, Momentum, and Stability. To see the other ratings of EPD for Growth, Sentiment, and Quality, click here.

HP Inc. (HPQ)

HPQ provides personal computing and other digital access devices, imaging and printing products, and related technologies, solutions, and services worldwide. The company operates through three segments: Personal Systems, Printing, and Corporate Investments.

On September 25, 2024, HPQ announced its acquisition of Vyopta, a provider of collaboration management solutions, to enhance its Workforce Experience Platform. This acquisition will improve HPQ’s ability to offer customers advanced analytics, monitoring, and AI-driven insights for better employee experience and IT management.

In terms of the trailing-12-month EBIT margin, HPQ’s 7.90% is 59.4% higher than the 4.95% industry average. Its 29.05% trailing-12-month Return on Total Capital is 941% higher than the 2.79% industry average. In addition, its 5.33% trailing-12-month net income margin is 47.2% higher than the industry average of 3.62%.

HPQ’s annualized dividend of $1.10 per share translates to a dividend yield of 2.99% on the current share price. Its four-year average yield is 3.10%. Its dividend payouts have increased at a CAGR of 12.5% over the past three years. Also, HPQ has paid dividends for 13 consecutive years.

In the fiscal third quarter ended July 31, 2024, HPQ reported total net revenue of $13.52 billion, up 2.4% year-over-year. Its non-GAAP earnings from operations were $1.09 billion. Moreover, the company’s non-GAAP net earnings were $819 million, or $0.83 per share.

Analysts expect HPQ’s EPS for the quarter ending October 31, 2024, to increase 3.4% year-over-year to $0.93. Its revenue for the same quarter is expected to grow 1.4% year-over-year to $14.01 billion. HPQ’s stock has gained 43.3% over the past year to close the last trading session at $36.85.

HPQ’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.

It has a B grade for Value and Quality. Within the Technology – Hardware industry, it is ranked #12 out of 41 stocks. To access the additional POWR Ratings of HPQ for Growth, Momentum, Stability, Sentiment, and Quality, click here.

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ELV shares were trading at $525.55 per share on Friday afternoon, up $5.27 (+1.01%). Year-to-date, ELV has gained 12.49%, versus a 21.41% rise in the benchmark S&P 500 index during the same period.

About the Author: Abhishek Bhuyan

Abhishek embarked on his professional journey as a financial journalist due to his keen interest in discerning the fundamental factors that influence the future performance of financial instruments. More...

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