My Top 10 Dividend Growth Companies For December: Growth Up To 16%, Yields Reaching 5%

Investment Thesis

A diverse and well-structured dividend portfolio should feature different types of companies: encompassing companies with high dividend yields, companies known for consistent dividend growth, and growth companies.

Dividend growth companies are particularly important since they can be appreciate the engine of your investment portfolio, ensuring that you enhance your dividend income to a significant amount year-over-year.

Through the strategic selection of dividend growth companies that pay sustainable dividends, you can acquire excellent investment results through the year-over-year dividend enhancements of the selected companies, particularly when committing to a long-term investment approach.

In today’s article, I have selected 10 dividend growth companies which could serve as key-drivers of your investment portfolio. Their potential lies in consistently raising your annual dividend income at an attractive growth rate.

These dividend growth companies don’t only stand out for their strong dividend growth rates, they also have an attractive Valuation (9 from the 10 selected companies have a P/E [FWD] Ratio below 30). In addition to that, the selected companies have a relatively low Payout Ratio (6 of the 10 exhibit a Payout Ratio below 30%), suggesting potential for future dividend enhancements.

Moreover, these companies have significant competitive advantages, a strong competitive position within their respective industry, a robust financial health, and a promising growth trajectory for the foreseeable future.

First, I would appreciate to explain the selection process for my top dividend growth stocks of the month of December. Since I have already explained this selection process in a previous article, you can skip the following description written in italics, if you are already familiar with the selection process.

First step of the Selection Process: Analysis of the Financial Ratios

In a first step, companies must confront the following requirements to be part of a pre-selection among which I will select the top dividend growth stocks of the month:

• Market Capitalization > $10B [changed from $15B]
• Average Dividend Growth Rate over the past 5 Years > 5%
• Dividend Yield [FWD] > 0%
• P/E [FWD] Ratio < 50
• EBIT Margin [TTM] > 5% or Net Income Margin [TTM] > 5%
• Return on Equity > 5% [changed from 8%]

I consider these metrics mentioned above important in order to help you to make well founded investment decisions and to enhance the probability of making good investment decisions.

A relatively high Dividend Growth Rate of more than 5% over the past 5 years ensures to enhance the probability that the company will be able to raise its Dividend to a significant amount in the following years.

A P/E [FWD] Ratio of less than 50 contributes to the fact that the growth expectations that are priced into the stock price of the company you aim to invest in are not extraordinarily high. This helps you that you run less risk of the share price decreasing significantly in a short-period of time in case that growth expectations for the company are not met. This can contribute to help you to protect you from losing a significant amount of money in a short period of time.

An EBIT Margin or Net Income Margin of more than 5% and a Return of Equity of more than 5% [changed from 8%] help to filter out companies that are profitable.

Second Step of the Selection Process: Analysis of the Competitive Advantages

In a second step, the companies’ competitive advantages (for example: brand image, innovation, technology, economies of scale, etc.) are analyzed in order to make an even narrower selection. I consider it to be particularly important for companies to have strong competitive advantages in order to stand against the competition in the long term. Companies without strong competitive advantages have a higher probability to go bankrupt one day, representing a strong risk for investors to lose their invested money.

Third Step of the Selection Process: The Valuation of the Companies

In the third step of the selection process, I will dive deeper into the Valuation of the companies.

In order to conduct the Valuation process of the companies, I use different methods and criteria, for example, the companies’ current Valuation as according to my DCF Model, the expected compound annual rate of return as according to my DCF Model and/or a deeper analysis of the companies’ P/E [FWD] Ratio. These metrics should serve as an additional filter to select only companies that currently have an attractive Valuation, helping you to recognize companies that are at least fairly valued.

The Fourth and Final Step of the Selection Process: Diversification over Industries and Countries

In a fourth and last step of the selection process, I have established the following rules for my top picks of the months selection: in order to help you to diversify your investment portfolio, a maximum of 2 companies should be from the same industry. In addition to that, there should be at least one pick that is from a company that is based outside of the United States, serving as an additional geographical diversification.

My Top 10 Dividend Growth Companies to Invest in for December 2023

• Comcast (NASDAQ:CMCSA)
• PepsiCo (NASDAQ:PEP)
• The Toronto-Dominion Bank (NYSE:TD)(TSX:TD:CA)
• Restaurant Brands International (NYSE:QSR)
• UnitedHealth Group (NYSE:UNH)
• BlackRock (NYSE:BLK)
• Apple (NASDAQ:AAPL)
• Microsoft (NASDAQ:MSFT)
• Visa (NYSE:V)
• Bank of America (NYSE:BAC)

Overview of the Selected Dividend Growth Stocks to Invest in for December 2023

	BLK	AAPL	MSFT	V	BAC	CMCSA	PEP	TD	QSR	UNH
Company Name	BlackRock	Apple	Microsoft	Visa	Bank of America	Comcast	PepsiCo	The Toronto-Dominion Bank	Restaurant Brands International	UnitedHealth Group
Sector	Financials	Information Technology	Information Technology	Financials	Financials	Communication Services	Consumer Staples	Financials	Consumer Discretionary	Health Care
Industry	Asset Management and Custody Banks	Technology Hardware, Storage and Peripherals	Systems Software	Transaction & Payment Processing Services	Diversified Banks	Cable and Satellite	Soft Drinks & Non-alcoholic Beverages	Diversified Banks	Restaurants	Managed Health Care
Market Cap	112.53B	2.95T	2.74T	510.98B	243.90B	173.40B	235.30B	108.78B	32.54B	507.12B
Dividend Yield [FWD]	2.64%	0.51%	0.81%	0.82%	3.11%	2.69%	2.99%	4.95%	3.01%	1.37%
Dividend Yield [TTM]	2.63%	0.50%	0.76%	0.73%	2.99%	2.65%	2.92%	4.68%	2.99%	1.33%
Payout Ratio	53.66%	15.36%	26.70%	21.35%	25.21%	28.86%	64.31%	47.11%	68.01%	29.05%
Dividend Growth 3 Yr [CAGR]	11.90%	5.57%	10.11%	15.30%	8.51%	8.20%	7.12%	7.18%	2.06%	14.71%
Dividend Growth 5 Yr [CAGR]	11.78%	6.15%	10.16%	16.27%	11.24%	9.40%	6.63%	6.88%	7.02%	16.14%
P/E [FWD]	20.93	28.96	33.07	26.11	9.12	11.98	22.88	11.02	25.11	23.1
Net Income Margin	30.66%	25.31%	35.31%	52.90%	31.52%	12.53%	9.05%	22.67%	13.22%	6.02%
24M Beta	1.52	1.24	1.14	0.97	1.14	0.79	0.48	0.91	0.59	0.45

Click to enlarge

Source: Seeking Alpha

PepsiCo

PepsiCo was founded in 1898 and currently employs 315,000 people. Among the company’s competitive advantages are its broadly diversified product portfolio, strong brand image, and enormous Profitability (EBIT Margin [TTM] of 14.59% and Return on Common Equity of 43.88%).

The company currently pays a Dividend Yield [FWD] of 2.99%. What makes PepsiCo even more attractive for investors is its moderate Payout Ratio of 64.31% and its 5 Year Dividend Growth Rate [CAGR] of 6.63%.

These metrics make the company attractive for dividend income and dividend growth investors and I am convinced that PepsiCo could be an excellent choice for The Dividend Income Accelerator Portfolio. The company is on my watchlist and I strategize to add it in the coming weeks.

PepsiCo’s appeal to investors is encourage enhanced by its low 24M Beta Factor of 0.48, which demonstrates that it can help you reduce portfolio volatility.

PepsiCo currently has a P/E [FWD] Ratio of 22.28, which is slightly below its average over the past 5 years (24.49), suggesting that the company is at least fairly valued.

The Seeking Alpha Dividend Grades encourage underline that PepsiCo is an excellent fit for both dividend income and dividend growth investors. The company receives an A+ rating for Dividend Consistency, an A for Dividend Growth, and an A- for Dividend Safety.

I believe that PepsiCo is the slightly more attractive choice for dividend growth investors when compared to competitor Coca-Cola (NYSE:KO), due to its broader product portfolio, higher dividend growth rates (its 3 Year Dividend Growth Rate [CAGR] stands at 7.12%, while Coca-Cola’s is 3.91%), and its slightly lower Payout Ratio (64.31% compared to 68.68%), providing the company with more potential to raise its dividend in the years to come.

Comcast

Comcast operates in the Cable and Satellite Industry and was founded in 1963.

According to the Seeking Alpha Quant Rating, Comcast is currently a strong buy. The company also has an attractive rating from the Seeking Alpha Factor Grades: rated with an A+ for Profitability, an A- for Revisions, and a B, for Momentum. For Growth, the company receives a C+, and for Valuation, a C. These metrics have strengthened my belief to include Comcast in this list of dividend growth companies to consider investing in.

In addition to the above, it can be highlighted that Comcast presently has an attractive Valuation. Its P/E [FWD] Ratio of 11.57 stands 32.05% below its average from the past 5 years, suggesting the company’s undervaluation.

Comcast’s current Dividend Yield [FWD] of 2.79% and its 10 Year Dividend Growth Rate [CAGR] of 11.80% make it an excellent pick for dividend growth investors.

The Toronto-Dominion Bank

The Toronto-Dominion Bank is a Toronto, Canada, based bank founded back in 1855, and presently has a Market Capitalization of $108.37B.

The Canadian bank has shown a 3 Year Dividend Growth Rate [CAGR] of 6.02% and currently pays shareholders a Dividend Yield [FWD] of 4.99%.

The metrics below encourage underline the bank’s attractive dividend.

This mixture of dividend income and dividend growth demonstrates that the bank is an appealing option for dividend income and dividend growth investors. For the same reasons, the company is on my list for potential inclusion into The Dividend Income Accelerator Portfolio.

Presently, I consider the Toronto-Dominion Bank to be undervalued, underscored by the fact that its current P/E [FWD] Ratio of 10.94 stands slightly below its average from the past 5 years (11.60).

Restaurant Brands International

Founded in 1954, Restaurant Brands International is a quick-service restaurant company based in Canada.

I consider the company to be currently fairly valued, evinced by the company’s P/E [FWD] Ratio of 25.05, which is only slightly above its average from the past 5 years (23.86).

The company’s current Dividend Yield [FWD] is 3.00% while it has shown a 5 Year Dividend Growth Rate [CAGR] of 7.02%, indicating that it combines dividend income and dividend growth.

Restaurant Brands International receives strong ratings from the Seeking Alpha Quant Rating and from the Seeking Alpha Factor Grades. According to the Seeking Alpha Quant Rating, Restaurant Brands International is currently rated with a buy. In regards to the Seeking Alpha Factor Grades, it can be highlighted that the company receives an A+ rating for Growth, an A- for Profitability, and a B for Momentum and Revisions.

When compared to competitor McDonald’s (NYSE:MCD), we can see that Restaurant Brands International pays the slightly higher Dividend Yield [FWD] (3.01% compared to 2.33%). The company has also shown the slightly higher Revenue Growth Rate [FWD] (8.70% compared to 5.28%).

However, when it comes to Profitability, I see McDonald’s as superior: the company’s EBIT Margin [TTM] stands at 46.02% (compared to Restaurant Brands International’s 30.97%).

UnitedHealth Group

UnitedHealth Group operates as a diversified health care company. The company, which was founded in 1977, has 400,000 employees and a current market capitalization of $508.27B.

I consider UnitedHealth Group as being currently undervalued. This is demonstrated by the company’s P/E [FWD] Ratio of 23.18, which is 14.76% below the Sector Median.

Different metrics imply that the company is particularly attractive for those investors seeking dividend growth: UnitedHealth Group pays a Dividend Yield [FWD] of 1.37%, has shown a Dividend Growth Rate [CAGR] of 16.14% over the past 5 years, and currently has a Payout Ratio of 29.05%, suggesting strong potential for future dividend enhancements.

I have also included the company into my watchlist for potential incorporation into The Dividend Income Accelerator Portfolio, since I believe it could align with its investment approach.

The metrics below encourage underline that the company is on track when it comes to growth.

BlackRock

From my perspective, BlackRock, is an excellent buy-and-hold-investment from which you can benefit enormously due to the company’s attractive Dividend Yield (Dividend Yield [FWD] of 2.67%) in combination with its Dividend Growth Rates (10 Year Dividend Growth Rate [CAGR] of 11.52%).

The only reason I have still not added BlackRock to The Dividend Income Accelerator Portfolio is because, through the investment in Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD) (BlackRock currently represents 3.68% of this ETF), the portfolio is already invested in the company.

My strategize is to include BlackRock into the portfolio after achieving a broader diversification, ensuring that the company’s share of the overall portfolio does not become disproportionally high, thereby ensuring a reduced company-specific concentration risk for the portfolio. Over the long term, I strategize to use BlackRock as a key company to successfully carry out the investment approach of The Dividend Income Accelerator Portfolio.

Presently, I believe that BlackRock is fairly valued, which is evinced by the company’s P/E [FWD] Ratio of 20.73, which is only slightly above its average from the past 5 years (19.44).

Apple

Apple remains by far the largest position of my personal investment portfolio (currently representing 20.56% of the overall portfolio) and the company is presently the second largest position of The Dividend Income Accelerator Portfolio, representing 5.07%. Within The Dividend Income Accelerator Portfolio, Apple only lies behind Bank of America, which accounts for 5.26% of the overall portfolio.

Apple’s Free Cash Flow Yield [TTM] currently stands at 3.27%, serving investors as an indicator of the company’s attractive risk/reward profile.

Apple’s Dividend Growth Rate [CAGR] over the past 10 years stands at 8.47%. This is an attractive metric for dividend growth investors particularly when considering Apple’s low Payout Ratio of only 15.36% in combination with its large share buyback program, which also benefits shareholders.

Considering the Seeking Alpha Quant Ranking, Apple is currently at number 6 (out of 27) within the Technology Hardware, Storage and Peripherals Industry, while it is ranked 141^st (out of 562) within the Information Technology Sector.

Bank of America

In a previous article, I explained why I decided to include Bank of America into The Dividend Income Accelerator Portfolio, in which the U.S. bank currently represents the largest position (5.26%):

Why I Chose Bank of America Over Competitors For The Dividend Income Accelerator Portfolio

The U.S. bank not only has an attractive Valuation (P/E [FWD] Ratio of 9.05, which stands 22.72% below its average from the past 5 years), it is also an attractive choice in terms of Profitability (Aa1 credit rating from Moody’s and Net Income Margin of 31.52%), and combines dividend income (Dividend Yield [FWD] of 3.14%) with dividend growth (5 Year Dividend Growth Rate [CAGR] of 11.24%). This metrics suggest that the bank is an ideal pick for dividend income and dividend growth investors.

When compared to competitors such as JPMorgan (NYSE:JPM) and Wells Fargo (NYSE:WFC), it can be highlighted that Bank of America has shown higher dividend growth rates: while Bank of America’s 5 Year Dividend Growth Rate [CAGR] is 11.24%, JPMorgan’s is 10.31% and Wells Fargo’s is -4.54%, evidencing that Bank of America is a top pick when it comes to dividend growth.

Microsoft

I still have not incorporated Microsoft into The Dividend Income Accelerator Portfolio, but the company is on my watchlist for potential incorporation.

One of the main reasons why I still haven’t included the company is that I have previously prioritized companies that can pay higher Dividend Yields and that can additionally contribute to reducing portfolio volatility, thus ensuring a reduced risk level from the beginning on.

In the coming weeks and months, however, I strategize to include Microsoft into The Dividend Income Accelerator Portfolio.

However, when doing so, I will ensure that the company’s proportion of the overall portfolio will not become too high, due to its slightly elevated Valuation.

Today, Microsoft has a P/E [FWD] Ratio of 33.38, which stands 11.27% above its average from the past 5 years (which is 30.00). However, I still believe that the company is not overvalued, particularly due to its strong growth prospects. Microsoft has shown a Revenue Growth Rate [FWD] of 11.75%, which is significantly above the one of the Sector Median (8.24%).

Microsoft’s 3 Year Dividend Growth Rate [CAGR] of 10.11% encourage underscores my confidence that the company is an excellent choice for this list of dividend growth companies to consider investing in.

Visa

I am convinced that Visa is one of the best dividend growth companies that investors can pick to invest in. This statement is underlined by the fact that Visa is among the largest positions of my personal investment portfolio (presently representing 6.32%), and I have plans to include the company into The Dividend Income Accelerator Portfolio in the future.

However, I strategize to include Visa after achieving a broader diversification across sectors, since the Financials Sector presently represents by far the largest sector of the portfolio, as I explained in greater detail in one of my previous articles:

How To Build A High-Potential Dividend Portfolio Combining Dividend Income With Dividend Growth

Visa has some characteristics that make it such an attractive choice for dividend growth investors: it has strong competitive advantages, an enormous financial health (underscored by its Return on Equity [TTM] of 48.34% and its EBITDA Margin [TTM] of 70.04%), a relatively low Payout Ratio (21.35%), and it has impressive metrics when it comes to growth and dividend growth: its EPS Diluted Growth [FWD] stands at 14.24% and its 5 Year Dividend Growth Rate [CAGR] is 16.27%.

Visa’s P/E [FWD] Ratio of 26.16 indicates that the company is currently undervalued, since it is 18.61% below its average from the past 5 years.

The Seeking Alpha Dividend Grades, which you can find below, underline that Visa is an excellent choice for dividend growth investors, given the company’s A+ rating for Dividend Growth, A for Dividend Safety, and A- for Dividend Consistency.

Overview of the Dividend Growth Rates and Payout Ratios of The Selected 10 Dividend Growth Companies

Considering the 10 companies I have presented in today’s article, Visa has the highest 3 Year Dividend Growth Rate [CAGR] (with 15.30%), followed by UnitedHealth Group (14.71%), BlackRock (11.90%), and Microsoft (10.11%).

The chart below demonstrates that, out of the selected companies, Apple has the lowest Payout Ratio (15.36%), followed by Visa (21.35%), Bank of America (25.21%), Microsoft (26.70%), and Comcast (28.86%).

What makes Visa particularly attractive for investors is its combination of a high 3 Year Dividend Growth Rate [CAGR] (15.30%) with a low Payout Ratio (21.35%), indicating a strong potential for future dividend growth. This underscores my suggestion to overweight Visa in a long-term investment portfolio with a focus on dividend growth.

PepsiCo and Restaurant Brands International, however, have a significantly lower potential for future dividend growth, which is indicated through their lower 3 Year Dividend Growth Rates [CAGR] (7.12% and 2.06% respectively) and moderate Payout Ratios (64.31% and 68.01% respectively).

However, these two companies can significantly contribute to reducing the volatility of your investment portfolio, evidenced through their low 24M Beta Factor of 0.48 and 0.59 respectively. For this reason, they can also be important pieces of your investment portfolio.

Conclusion

To enhance the potential positive effects of investing in dividend growth companies, a long-term investment approach is crucial for investors.

The identification of companies with strong competitive advantages is elementary. Only those with strong competitive advantages can stand out against opponents over the long term, ensuring that you benefit from the full potential of dividend growth companies.

In today’s article, I have introduced you to 10 dividend growth companies that have shown strong results in terms of dividend growth in recent years. Moreover, they have an attractive Valuation (9 of the 10 selected companies have a P/E [FWD] Ratio below 30), their growth outlook in the foreseeable future is positive, and they have significant competitive advantages, in addition to a strong financial health (6 of the 10 selected companies have a Net Income Margin above 20%).

I believe that each of the presented companies can act appreciate an engine of your investment portfolio, ensuring that your additional income increases at an attractive rate year-over-year.

A crucial strategy for investors to enhance their benefits when investing is to include both high dividend yield and dividend growth companies in their portfolio. This approach allows you to produce an immediate income while also enhancing future earnings.

Author’s note: I would appreciate hearing your opinion on this selection of dividend growth companies. Do you own any of these picks or strategize to acquire them? Are any of the selected picks on your watch list? What are currently your favorite dividend growth stocks to consider for your investment portfolio?