The 7 Best Dividend Growth Stocks to Buy

Extra Space Storage

• Market value: $21.4 billion
• Dividend yield: 4.3%
• Two-year estimated dividend growth rate: 8.1%

Extra Space Storage (EXR (opens in new tab), $150.34) is a Utah-based real estate investment trust (REIT) that owns or manages more than 2,300 self-storage properties and 176 million square feet of storage space across the U.S.

In April, Raymond James (opens in new tab) analyst Jonathan Hughes upgraded the REIT to Strong Buy from Outperform (the equivalent of Buy).

The upgrade followed news that Extra Space Storage and Life Storage will merge sometime in the second half of this year. "The leverage-neutral merger expands EXR's asset base by more than 40% and the combined company is expected to have a pro forma equity market cap of $36 billion and enterprise value of $47 billion, becoming the eighth largest REIT," Hughes says.  

"EXR is a fantastic company with a management team that has a proven track record of prudent capital allocation and value creation, and we believe the relative valuation discount does not fully-reflect EXR's blue-chip status," Hughes said. The analyst admits that there is some risk to his outlook for EXR, including the integration of LSI and the fact that the merger creates a much bigger entity that could "make external growth more difficult." Still, the stock's "risk/reward is too compelling to ignore."

In EXR's Q4 2022 report, its core funds from operations (FFO) – a key earnings metric for REITs – were $2.09 a share, 9.4% higher year-over-year. And Extra Space's same-store revenue increased 11.8% during the fourth quarter to $370 million from $331 million a year earlier.

The company's big expansion plans will help boost its financial metrics. The addition of LSI is expected to be accretive to EXR's core FFO within the first year of closing. It is also expected "to generate at least $100 million in annual run-rate operating synergies from G&A and property operating expense savings as well as improved property operating revenue and tenant insurance income," according to a press release (opens in new tab). 

The REIT is already one of the best dividend growth stocks around. In February, the company hiked its quarterly dividend (opens in new tab) by 8% to $1.62 per share. 

Over the past five years, EXR has delivered a cumulative total return (price plus dividends) of more than 180%. That's partly due to a dividend that has nearly doubled over that same time frame.

Kimco Realty

• Market value: $11.7 billion
• Dividend yield: 4.9%
• Two-year estimated dividend growth rate: 13.7%

Founded in 1958, Kimco Realty (KIM (opens in new tab), $18.86) is North America's largest publicly traded owner and operator of open-air, grocery-anchored shopping centers with roughly 530 U.S. properties providing 91 million square feet of gross leasable space. Structured as a REIT, it's been publicly traded since 1991.

Kimco's stock could become more popular with investors in the future because of a decision it took in December. The REIT announced that it would undergo a reorganization to create a new holding company ("New Kimco") named Kimco Realty Corporation. At the same time, the current company ("Old Kimco") will be converted to a limited liability firm named Kimco Realty OP LLC.

Long story short, New Kimco will control Old Kimco, the operating partnership, enabling it to acquire properties tax-deferred from interested sellers. Often, sellers prefer to defer taxes on the sale by contributing the assets to an operating partnership in return for membership interests rather than cash.

"We believe this reorganization will have no material impact on our existing shareholders, debt security holders, lenders or other constituencies, and will represent an enhanced platform for Kimco's continued growth," stated Kimco's Dec. 15 press release (opens in new tab).

Another positive for investors is an infusion of cash from Kroger's (KR (opens in new tab)) $24.6 billion buyout of Albertsons (ACI (opens in new tab)) the company received in late 2022. As part of the deal, Albertsons agreed to pay a $4 billion special dividend to its shareholders on Nov. 7, and Kimco, which owns 28.3 million ACI shares, received a $194.1 million dividend payment.

"The benefit of the ACI capital can't be overstated as a competitive advantage because it is dilution free and KIM is not beholden to the ACI/KR deal closing, but rather a shot-clock that expires in late May," says Piper Sandler analyst Alexander Goldfarb (Overweight, the equivalent of Buy). 

The monetization of its Albertson stake should help drive future growth in Kimco's funds from operations leading to higher dividend payouts. It could also keep KIM among Wall Street's best dividend growth stocks.

Marathon Oil

• Market value: $14.8 billion
• Dividend yield: 1.7%
• Two-year estimated dividend growth rate: 17.9%

Marathon Oil (MRO (opens in new tab), $23.74) is one company that's expanding through M&A activity. In November, MRO announced it would pay $3.0 billion to acquire Ensign Natural Resources' Eagle Ford assets. The acquisition doubles the company's position in the Eagle Ford basin. Further, it's a purchase of assets that present immediate gains in earnings, while also providing future development opportunities.

"The transaction is immediately and significantly accretive to Marathon Oil's key financial metrics, expected to drive a 17% increase to 2023 operating cash flow and a 15% increase to free cash flow," the company's press release stated (opens in new tab).

The energy stock is already flush with cash. According to its fiscal 2022 presentation, it ended the year with adjusted free cash flow of $3.9 billion. That's a free cash flow yield of almost 23%. Based on this free cash flow yield, Marathon is a top value stock.

As for its place on this list of best dividend growth stocks, the company announced in late January that it is hiking its quarterly payout by 11%.

"This marks the seventh increase to our base dividend in the last two years, representing a cumulative increase of over 230% since the beginning of 2021, fully consistent with the strength of our portfolio and our commitment to pay a competitive and sustainable base dividend to our shareholders," CEO Lee Tillman said in the company's press release (opens in new tab).

Analysts are generally optimistic about Marathon's oil and gas business going forward. In mid-April, UBS Global Research (opens in new tab) analyst Josh Silverstein initiated coverage on MRO with a Buy rating and $33 price target, representing implied upside of 39%.

"The key driver of our positive outlook is the recontracting of MRO's Equatorial Guinea LNG (EGLNG) to market prices in 2024, increasing cash flow by ~$500 million," Silverstein writes in a note to clients. "This uplift gives MRO the lowest breakeven price among Oil E&Ps, while also supporting an increase in the Return of Capital Yield to 11.2%, on our estimates, the second highest for Oil E&Ps."

Charles Schwab

• Market value: $92.8 billion
• Dividend yield: 2.0%
• Two-year estimated dividend growth rate: 18.4%

On Jan. 14, financial firm Charles Schwab (SCHW (opens in new tab), $51.03) gave dividend investors a reason to cheer: It increased its quarterly dividend by 14% to 25 cents a share. The $1 annual payment yields 2.0%. That is admittedly not the highest among the dividend growth stocks featured here, but given SCHW's solid fundamentals and commitment to dividend hikes, it's likely to keep increasing.

In mid-April, SCHW announced first-quarter earnings per share (EPS) of 93 cents, up 21% from a year earlier. Its quarterly revenues were $5.1 billion, a 10% improvement over Q1 2022. "The first quarter presented clients with a mixed macroeconomic backdrop," said Walt Bettinger, co-chairman and CEO of Charles Schwab, in the company's earnings release, adding that "through the various ups and downs [including the worst banking crisis in over a decade] to start the year, Schwab remained a trusted partner to investors."

What's more, Peter Crawford, chief financial officer at Charles Schwab, said that "maintaining the capital and liquidity required to support Schwab's long-term growth remains our primary balance sheet objective."  

SCHW sold off sharply in March following the collapse of several regional lenders, including Silicon Valley Bank, with shares down around 40% for the year-to-date. But recent technical troubles have "created a great opportunity to buy into a leading wealth management franchise at an attractive valuation," says William Blair (opens in new tab) analyst Jeff Schmitt (Outperform, the equivalent of Buy). 

Howmet Aerospace

• Market value: $17.7 billion
• Dividend yield: 0.4%
• Two-year estimated dividend growth rate: 18.8%

The 16 analysts who cover Howmet Aerospace (HWM (opens in new tab), $42.99) that are tracked by S&P Global Market Intelligence are very high on the producer of engineered metal products. Nine say it's a Strong Buy, four call it a Buy and three have it at Hold. 

One of the big reasons for the optimism is that international air traffic is still down from pre-pandemic norms. In February, it was off by 15% from February 2019 levels, according to data (opens in new tab) from the International Air Transport Association (IATA). As a result, companies like Howmet should benefit from higher orders as consumers get more comfortable with traveling.

Jefferies analyst Sheila Kahyaoglu recently initiated coverage on HWM with a Buy rating and a $50 price target, representing implied upside of 16.3% to current levels.

"HWM is a tech leader with 85% of sales from 1st/2nd market share positions, capable of net price realization that supports mid-20% adjusted EBITDA [earnings before interest, taxes, depreciation and amortization] margins and ~100% free cash flow conversion in out years," Kahyaoglu writes in a note to clients.

Howmet's outlook for all of 2023 is encouraging, with the company expecting to generate at least $580 million in free cash flow from $6.0 billion in revenue. This compares to the $520 million in free cash flow and $5.7 billion in revenue it reported in fiscal 2022.

As for HWM's place on this list of the best dividend growth stocks: Analysts estimate the company will increase its dividend by 18.8% over the next two years, while revenue is expected to grow 8.4% in fiscal 2023 and 7.9% in fiscal 2024.

Ingersoll Rand

• Market value: $22.1 billion
• Dividend yield: 0.1%
• Two-year estimated dividend growth rate: 37.5%

Ingersoll Rand (IR (opens in new tab), $54.44) has its hands in many pies. The industrial stock has more than 40 market-leading brands that provide products and services to many industries through two operating segments: Industrial Technologies and Services (ITS) and Precision and Science Technologies (PST).

The analyst community likes Ingersoll because it does a good job buying smaller companies and successfully integrating them into the larger entity, generating compounding earnings over the long haul. In 2022, it had 12 acquisitions.

One of the acquisitions was SPX Flow's Air Treatment business, which IR bought for $525 million. The company's brands include Hankison, Pneumatic Products and Deltech. The acquisition closed on Jan. 3.  

"The acquisition of SPX Flow's Air Treatment Business adds a leading manufacturer of energy-efficient desiccant and refrigerated dryers, filtration systems, and purifiers for dehydration in compressed air systems," wrote Jefferies analysts (Buy) in an early January research report. "The business will complement IR's leading position in the compressed air market and enables the company to offer more innovative solutions and expands its product offerings to a broader market." 

Ingersoll tried to buy all of SPX Flow last summer for $3.7 billion, but was outbid by private equity firm Lone Star Funds. 

The company announced in September 2021 that it would initiate a quarterly dividend as part of its capital allocation strategy. Starting with the December 2021 payment, it began paying 2 cents a share on a quarterly basis. And Wall Street expects IR to be one of the best dividend growth stocks, targeting a 37.5% increase in its payout over the next two years.

"With the demonstrated ability to generate free cash flow and nearly $2 billion in proceeds from recent divestitures, the company is focused on deploying capital to continue its transformation to a high growth and margin portfolio powered primarily through organic investments and an M&A focused capital allocation strategy," the company stated in its press release announcing its new capital allocation plan (opens in new tab).

Progressive

• Market value: $81.1 billion
• Dividend yield: 0.3%
• Two-year estimated dividend growth rate: 39.6%

Progressive's (PGR (opens in new tab), $138.70) history dates back to 1937 when Joseph Lewis and Jack Green started the Progressive Mutual Insurance Company in Cleveland, Ohio. It specialized in auto insurance. Progressive went public in 1971. The rest is history.

Today, it's the third-largest U.S. insurance company in the private passenger auto market by premiums written. Progressive and 15 other companies account for 83% of the private passenger auto market.

This market accounts for 94% of PGR's Personal Lines business. In 2022, Personal Lines accounted for 77% of its overall net premiums written. Its Commercial Lines, Property, and Other Indemnity segments accounted for the remaining 23%.

In 2019, Progressive adopted a new dividend policy that would see it pay a quarterly dividend of 10 cents a share, plus a variable dividend at the end of the year based on how its business performed while also factoring into the payout the future growth opportunities.

Before 2019, it solely paid out an annual dividend based on its performance. However, if management and the board feel the company can gain market share, it will hold back the year-end dividend, investing the funds to grow the business.

So, based on its current share price, the annual dividend of 40 cents per share yields  just 0.3%. However, since the change, it has paid out a total of $10.24 in quarterly and year-end dividends. While it did not pay a year-end dividend in 2022, estimates are for the payout to jump nearly 40% the next two years, which would make PGR one of the best dividend growth stocks. 

"We believe that the stock, despite recent outperformance, should do well as it reflects the potential to compound top line and earnings in the 15% range over the long term," say William Blair analysts, who have an Outperform (Buy) rating on PGR. "This does not appear to be in the current valuation, as the stock is trading at only 14 times our 2024 operating EPS estimate. Near-term catalysts include potential for accelerating premium growth and upward EPS revisions."