Dividend investing has a long, successful track record that makes it one of the best strategies investors can use. The best dividend growth stocks to buy tend to be those that regularly raise their shareholder payout.
The asset managers at Hartford Funds looked at the performance of the benchmark S&P 500 going all the way back to 1930, and found that dividends contributed 40% to the total return of the index over that 91-year period. Reinvesting dividends in the benchmark, coupled with the power of compounding, would have turned a $10,000 investment in 1960 into more than $5.1 million. Compare that to the $796,432 that grubstake would have become based just on the index’s price alone.
So if you’re looking for the best dividend growth stocks to buy, the three stocks below should be at the top of your list.
Agree Realty (ADC)
Real estate investment trust (REIT) Agree Realty (NYSE:ADC) is an excellent place to begin buying dividend growth stocks. Its portfolio typically focuses on tire and auto centers, home improvement stores and supermarkets. It’s top tenants include Walmart (NYSE:WMT), Tractor Supply (NYSE:TSCO) and Dollar General (NYSE:DG).
That means Agree has a solid foundation upon which to grow. Its leases are typically long-term and offer stability for the regular income streams generated. Last quarter the REIT noted its portfolio consisted of 2,161 properties and was 99.6% leased with approximately 8.2 years remaining on the leases.
Agree Realty’s stock is down 6% year-to-date but that has more to do with the high-interest rate environment we’re currently in. Such economic conditions tend to weigh heavily on REITs and a return to normalcy should seen it resume its traditional growth trajectory. Despite fighting with one hand behind its back for the past year or so, Agree has a 10-year total return that just about matches the S&P 500.
Dick’s Sporting Goods (DKS)
Sporting goods retailer Dick’s Sporting Goods (NYSE:DKS) is not only an impressive dividend growth stock to buy but also a good, all-around utility player for your portfolio. It delivers both growth and income.
DKS stock is up 45% over the past 12 months and has handily trounced the S&P 500 over the past three-, five- and 10-year periods. And that’s before goosing the returns with its dividend payments. Over the past decade, Dick’s has a total return of more than 400% versus a 234% return by the broad market index.
The sporting goods retailer has a long and strong history of raising its dividend and buying back shares. The payout has increased by an eye-popping 27% for the past 10 years all the while steadily reducing is share count. Last quarter it repurchased $648 million worth of stock, some 5.4 million shares, and still has $780 million remaining on its authorization.
Dick’s dividend yields 2% annually, which is a solid yield to start with. You will find as you own the stock over time, your yield on cost will grow because it buys back more stock and keeps hiking the payout.
Costco (COST)
Warehouse club Costco (NASDAQ:COST) is another great dividend growth stock to own, just about anytime you purchase the stock. But you would have done amazingly well had you waited for the stock to fall before buying in. Over the past decade, Costco stock generated a 730% total return for shareholders, a better than three-to-one drubbing of the benchmark index.
The value proposition Costco brings to the table is tough to beat. Buying in bulk saves consumers money, which resonates well no matter the market, but especially when times are tough. And because its customer base is slightly more upscale than the competition, they can buy more while shopping longer.
And it’s often mentioned, but the warehouse club has a key lever it can pull to juice revenue and profits: its membership fee. Every five to six years Costco increases the price of a membership, which flows right down its financial statements to the bottom line. It might lose a customer or two along the way, but not nearly enough to cause concern, all the while boosting top and bottom line figures.
Costco is due for another increase very soon so expect a cash infusion to bolster its already superior earnings results.
On the date of publication, Rich Duprey did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.