- Microsoft (NASDAQ:MSFT) — This dividend stock’s yield is low, but increasing quickly.
- Costco (NASDAQ:COST) — Its dividends have grown by 12% annually over the past five years.
- AbbVie (NYSE:ABBV) — AbbVie currently boasts a 3.8% yield.
Year-to-date, the S&P 500 is down by 7%, while the Nasdaq and Russell 2000 are down even more with losses of 12% and 8%, respectively. Initially, stocks sold off due to the Federal Reserve signaling a number of rate hikes in 2022 to combat multi-decade-high inflation. Then, Russia invaded Ukraine, which drove the price of oil and other commodities up significantly. This both adds to inflation and increases the risk of recession.
Historically, uncertain times like these are some of the best times to invest. This is when the opportunity emerges to buy high-quality stocks at a discount.
One characteristic of a high-quality stock is paying dividends — and a consistent track record of hiking those dividends. This indicates a strong business that can thrive in all types of economic conditions, and a management team focused on returning capital to shareholders.
Here are three such dividend growth stocks that investors should consider now:
| MSFT | Microsoft | $300.43 |
| COST | Costco | $561.35 |
| ABBV | AbbVie | $159.20 |
Microsoft
MSFT is one of the leading companies in the software, enterprise software, and cloud computing markets. It also sells PCs, tablets, gaming consoles, other intelligent devices, and related accessories through direct-to-consumer channels, OEMs, distributors, resellers, digital marketplaces and retail stores.
Currently, Microsoft pays $2.48 per share in annual dividends, which equates to an 0.9% yield. This is significantly less than many other companies. However, it’s had a streak of increasing its payout by more than 10% over the last three years. Over the last decade, the company has increased its payout by 259%. Management has also been rewarding shareholders through buybacks which lift EPS.
Further, unlike other dividend stocks, MSFT continues to grow revenues and earnings by an impressive amount. Not surprisingly, MSFT has been one of the best-performing stocks over the last decade as it successfully pivoted to being cloud-focused and subscription-based. It’s also finding growth both organically and through acquisitions like the recent purchases of Nuance Communications and Activision Blizzard.
MSFT’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to “buy” in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B for Quality due to its leadership in many large markets and a track record of growth and execution. It also has a B for Sentiment, as 22 out of 23 analysts covering the stock have a buy rating with a consensus price target of $363, implying a 23% upside. Click here to see the complete POWR ratings for MSFT, including Growth, Value, and Momentum.
Costco
COST operates membership warehouses in the U.S., Canada, Puerto Rico, the United Kingdom, Mexico, Australia, China, Japan, and other countries. It offers branded and private-label products in a wide range of categories and operates more than 800 locations.
Like MSFT, COST isn’t really considered a major dividend stock, because its payout is relatively low. However, it has all the signs of becoming a major dividend stock in the future based on the steady growth of its payouts. Over the last decade, its dividend payout went from 89 cents per share to $3.16 per share. Over the last five years, its dividends have increased by a 12% annual rate.
The company’s recent financial performance has been quite strong, indicating that this trend is nowhere near exhausted. In its last quarter, it had 16% revenue growth. Clearly, value-conscious investors are increasingly buying COST stock in bulk to maximize their purchasing power during this inflationary period.
COST has an overall B rating, which translates to “buy” in our POWR Ratings system. It has a B for Stability due to its track record of growing sales, earnings, and dividends. In terms of Industry grade, COST is a member of the A-rated Grocery/Big Box Retailers which has been a beneficiary of inflation. Click here to see COST’s complete POWR ratings including grades for Momentum, Sentiment, Growth, Value, and Quality.
AbbVie
ABBV is a biopharmaceutical company engaged in the research and development, manufacturing, commercialization and sale of medicines and therapies. ABBV offers products in various categories, including immunology, oncology, aesthetics, neuroscience, and more.
Healthcare stocks are a great place to find dividend growth stocks, because they tend to have stable, growing revenues. After all, healthcare spending has grown at a faster rate than the economy since the 1950s. Two main factors are the aging population and increasing government spending on healthcare services.
ABBV only started paying a dividend in 2013. Since then, it’s hiked that dividend every single year and currently pays $5.64 per share which equates to an average annual increase of 28%. Given that ABBV has several strong drugs, a well-regarded pipeline, and the track record of successfully developing new treatments and bringing them to market, this trend should continue.
Its last earnings report shows strong momentum as well, with 7.4% revenue growth. Wall Street analysts are forecasting 6% revenue growth for Q1 and an 8% increase in EPS, which makes the stock quite appealing with a forward P/E of 11.
These positives are reflected in ABBV’s POWR Ratings. The stock has an overall A rating, equating to a “strong buy” in our rating system. In terms of its component grades, ABBV has a B for Value and Quality. This is consistent with its low P/E, 3.8% dividend yield, and expectations of continued dividend growth. In addition to the component grades highlighted, click here to see ABBV’s full POWR Ratings.
On the date of publication, Jaimini Desai did not have (either directly or indirectly) positions in any of the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.