Dividend-growth stocks are attractive because they provide reliable income through regular dividend payments and offer the potential for increasing dividends as the business grows. Hence, income investors might consider investing in Visa Inc. (V), Mastercard Incorporated (MA), and Costco Wholesale Corporation (COST), as they demonstrate strong dividend growth with double-digit increases.

The U.S. economy is showing mixed signals, making it crucial for investors to seek stability. Dividend growth stocks stand out by offering a combination of reliable income and capital appreciation, appealing to those seeking steady revenue and inflation protection. These stocks also present significant potential for future dividend increases, enhancing their long-term value.

Moreover, inflation pressures are easing with falling prices and reduced fears. However, weak jobs data and rising unemployment to 4.3% have raised recession concerns. Despite these challenges, the economy grew by 2.8% in Q2 2024. The Fed is expected to cut rates in September to address economic uncertainty and stimulate growth, despite recent rate fluctuations.

Therefore, a diversified strategy that includes dividend growth stocks could offer significant stability amidst this volatility. Considering these conducive trends, let’s analyze the fundamental aspects of the three dividend growth picks.

Visa Inc. (V)

V is an international payment technology company that operates VisaNet, a transaction processing network that enables the authorization, clearing, and settlement of payment transactions. It offers Visa Direct, Visa B2B Connect, Visa Cross-Border Solution, Visa DPS (Data Processing Services), and credit, debit, and prepaid card products.

On July 9, 2024, V and HSBC announced a partnership to launch Zing, an international money app that allows users to hold, send, and transact in multiple currencies. Zing leverages V’s technology for features like low-cost currency exchange and real-time payments.

On June 27, 2024, V announced a collaboration with Amazon to offer Canadian consumers installment payment options through eligible RBC and Scotiabank credit cards. This new feature allows customers to split their Amazon purchases into smaller, fixed payments over time.

In terms of the trailing-12-month net income margin, V’s 54.72% is 143.4% higher than the 22.48% industry average. Its 20.99% trailing-12-month Return on Total Assets is considerably higher than the 1.08% industry average. Likewise, its 49.85% trailing-12-month Return on Common Equity is 378.9% higher than the industry average of 10.41%.

V has paid dividends for 15 consecutive years.  Its annual dividend is $2.08, which translates to a yield of 0.80% at the current share price. Its four-year average dividend yield is 0.67%. Moreover, the company’s dividend payouts have increased at a CAGR of 17.6% over the past three years.

V’s net revenues for the third quarter ended June 30, 2024, increased 9.6% year-over-year to $8.90 billion. Similarly, the company’s non-GAAP net income and non-GAAP EPS were $4.91 billion and $2.42, respectively, up 9.1% and 12% compared to the prior-year quarter. Additionally, as of June 30, 2024, V’s total assets stood at $91.04 billion, compared to $90.50 billion as of September 30, 2023.

Street expects V’s EPS and revenue for the quarter ending September 30, 2024, to increase 10.6% and 10.1% year-over-year to $2.58 and $9.47 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 8.4% to close the last trading session at $260.13.

V’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 #17 out of 46 stocks in the Consumer Financial Services industry. It has a B grade for Stability and Quality. Click here to see V’s ratings for Growth, Value, Momentum, and Sentiment.

Mastercard Incorporated (MA)

MA is a technology company that provides transaction processing and other payment-related products and services internationally. It facilitates the processing of payment transactions, including authorization, clearing, and settlement, as well as delivers other payment-related products and services.

On June 10, 2024, MA announced that Michael Kors is the first retailer to integrate Shopping Muse, an AI-powered shopping assistant from Dynamic Yield. This tool offers personalized fashion recommendations and is designed to enhance the online shopping experience by improving conversion rates.

In terms of the trailing-12-month gross profit margin, MA’s 100% is 64.9% higher than the 60.63% industry average. Its 43.43% trailing-12-month Return on Total Capital is 528.9% higher than the 6.91% industry average. Also, its 189.68% trailing-12-month Return on Common Equity is considerably higher than the 10.39% industry average.

MA pays an annual dividend of $2.64, which translates to a yield of 0.58% at the current share price. Its four-year average dividend yield is 0.53%. In addition, the company’s dividend payouts have increased at a CAGR of 14% over the past three years. MA has paid dividends for the past 17 years.

In the second quarter ended June 30, 2024, MA’s net revenue rose 11% year-over-year to $6.96 billion, and its operating income increased 10.4% from the previous year to $4.04 billion. For the same period, the company’s adjusted net income and adjusted EPS were $3.34 billion and $3.59, up 21.8% and 24.2% respectively, compared to the prior-year quarter.

For the quarter ending September 30, 2024, MA’s EPS and revenue are expected to increase 10% and 11.1% year-over-year to $3.73 and $7.26 billion, respectively. MA surpassed the Street EPS estimates in each of the trailing four quarters. Over the past nine months, the stock has gained 16.5% to close the last trading session at $459.36.

MA’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.

MA has a B grade for Stability and Quality. Within the Consumer Financial Services industry, it is ranked #12. To see MA’s ratings for Growth, Value, Momentum, and Sentiment, click here.

Costco Wholesale Corporation (COST)

COST and its subsidiaries engage in the operation of membership warehouses internationally. The company offers branded and private-label products across various merchandise categories. It offers dry groceries, deli products, liquor, appliances, electronics, hardware, sporting goods, and furniture.

In terms of the trailing-12-month Return on Common Equity, COST’s 31.64% is 197.9% higher than the 10.62% industry average. Its 17.72% trailing-12-month Return on Total Capital is 158.4% higher than the 6.86% industry average. In addition, its 3.77x trailing-12-month asset turnover ratio is 345% higher than the industry average of 0.85x.

COST’s annualized dividend of $4.64 per share translates to a dividend yield of 0.54% on the current share price. Its four-year average yield is 1.65%. Its dividend payouts have increased at a CAGR of 23% over the past three years. Also, COST has paid dividends for 19 consecutive years.

During the third quarter that ended May 12, 2024, COST’s total revenue increased 9.1% year-over-year to $58.52 billion. The company’s operating income grew 30.9% compared to the same quarter last year, reaching $2.20 billion. Its net income increased 29.1% year-over-year to $1.68 billion. Additionally, the company’s EPS was $3.78, up 29% year-over-year.

Analysts expect COST’s EPS for the quarter ending August 31, 2024, to increase 4.4% year-over-year to $5.07. Its revenue for the same quarter is expected to grow 1.6% year-over-year to $80.20 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. COST’s stock has gained 57.1% over the past year to close the last trading session at $864.82.

COST’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 Momentum and Stability. Within the A-rated Grocery/Big Box Retailers industry, it is ranked #26 out of 37 stocks. To access COST’s grades for Growth, Value, Sentiment, and Quality, click here.

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V shares were trading at $260.77 per share on Wednesday afternoon, up $0.64 (+0.25%). Year-to-date, V has gained 0.74%, versus a 15.07% 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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