Dividend growth investing is a powerful strategy for building lasting wealth. Companies that consistently raise their dividends tend to possess durable competitive advantages, robust cash flows, and shareholder-friendly management teams.
These characteristics make dividend growth stocks compelling investments in any market environment. The strategy's success stems from the financial discipline and steady execution these companies demonstrate, making them ideal portfolio cornerstones for investors seeking both rising income and capital appreciation.
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Here are two exceptional dividend growers that deserve your attention.
A payments processing giant
Visa (NYSE: V) operates the world's largest electronic payments network, processing billions of transactions annually. The company's vast scale and global footprint create significant competitive advantages in the digital payments industry.
The payment processor's network effects create a powerful competitive moat through a self-reinforcing business model. More cardholders attract more merchants to the network, which in turn draws more cardholders. This dynamic helps explain Visa's industry-leading profit margins and consistent earnings growth.
Visa's market dominance extends beyond traditional credit card payments. The company continues to invest heavily in digital payment technologies and cybersecurity infrastructure, strengthening Visa's competitive position as consumer payment preferences evolve toward digital and mobile solutions.
While Visa's 0.77% dividend yield might appear modest, the company has increased its payout by 15.4% annually over the past five years. The payment giant maintains a conservative 21.4% payout ratio, leaving substantial room to boost dividends as earnings grow.
The stock trades at 27.4 times forward earnings compared to the S&P 500's 23.4 multiple. This moderate premium appears justified given Visa's global payments leadership and demonstrated commitment to growing shareholder payouts.
A pharmaceutical powerhouse
AbbVie (NYSE: ABBV) has built a diverse portfolio of medicines anchored in immunology and oncology. The company's current growth drivers include blockbuster drugs Skyrizi and Rinvoq, which help offset declining sales from its former top seller Humira.
The pharmaceutical giant's competitive edge stems from substantial investments in research and development. AbbVie's robust product pipeline and expansion into emerging markets position the company for sustained growth. These strengths have proven particularly valuable as the company navigates Humira's loss of exclusivity.
AbbVie's immunology franchise continues to expand well beyond Humira. Skyrizi and Rinvoq have captured significant market share across multiple therapeutic areas over the past two years, pointing to robust growth ahead. The company's growing presence in oncology adds another powerful revenue stream, benefiting from the strong pricing power pharmaceutical companies typically command in cancer therapies.
AbbVie rewards shareholders with an attractive 3.74% dividend yield and has grown its payout by 7.69% annually over the past five years. The company's 213% payout ratio might raise eyebrows, but dividend-paying pharmaceutical companies average 141% due to their unique product development cycles.
The stock trades at 14.6 times forward earnings, a significant discount to the S&P 500's 23.4 multiple. This attractive valuation, combined with AbbVie's robust product portfolio and commitment to dividend growth, offers investors compelling value in the pharmaceutical industry.
Building wealth through rising dividends
Dividend growth stocks often reward investors in different ways. Visa embodies the low-yield, high-growth approach through its dominant payment network and conservative payout ratio. AbbVie offers a higher-yield strategy backed by its robust pharmaceutical pipeline, proven capital allocation strategy, and commitment to rewarding loyal shareholders via ever-increasing dividend payments.
Despite their different approaches toward value creation, both companies showcase how powerful competitive advantages drive sustainable dividend growth. Visa's payment network and AbbVie's therapeutic leadership create durable economic moats, supporting rising shareholder payouts through the full complement of market cycles.
Therefore, these industry leaders deserve strong consideration at their current valuations among investors prioritizing long-term wealth creation.
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*Stock Advisor returns as of January 13, 2025
George Budwell has positions in AbbVie and Visa. The Motley Fool has positions in and recommends AbbVie and Visa. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
