Top 5 Dividend Growth Stocks For 2019 (2024)

Last year was a wild ride for US investors, with domestic equities hit by higher volatility coupled with a precipitous drop in prices in the last quarter. A combination of factors including a deteriorating trade relationship with China and impending rising interest rates have negatively impacted the equity markets. Faced with increased uncertainty as they move into the new year, investors might need to analyze their existing portfolio and formulate new portfolio strategies to meet their financial goals for 2019.

Given this backdrop, investors may want to consider a significant body of research suggesting stocks that have consistently grown their dividends have historically outperformed all other categories of stocks. Furthermore, the research team at Reality Shares found that companies with the highest dividend growth rates have historically outperformed the S&P 500 even more, as shown in the figure below displaying the five year annualized total percent return (relative to outperformance or underperformance of the S&P 500) for different types of dividend growingstocks.

Each quintile represents 20% of the total group of stocks being analyzed. The top 20% (Quintile Five) shows that the highest dividend growth stocks outperformed the S&P 500 by over 8%. While the bottom 20% (Quintile One) shows that the lowest dividend growth stocks underperformed the S&P 500 by almost 2%.

Although there are many dividend growth strategies available now, most strategies available to investors are based on a rear-view approach, looking at historical dividend growth, not a company’s potential for future dividend growth. In an effort to identify stocks with the highest dividend growth potential, Reality Shares developed DIVCON®, a dividend-health rating methodology. DIVCON utilizes a set of underlying fundamental factors to evaluate dividend-paying stocks in the S&P 500 and rank their dividend growth potential for the next 12 months.

Using DIVCON to uncover stocks with the highest potential for dividend growth, here are my top five dividend growth stock picks for 2019:

1. Visa (DIVCON Score: 70)

Symbol: V (NYSE)

Sector: Finance (credit cards, transaction services)

DIVCON Rating: 5 out of 5

With a DIVCON score of 70, Visa is the top stock pick for 2019. The stock has been rated DIVCON 5 since 2017. In 2018, the company outperformed with a total return of 16% compared to S&P 500’s negative (-4%) return. The DIVCON methodology also looks at the earnings and free cash flow, the driving factors behind dividends. The company’s dividends were supported by 35% earnings per share growth compared to 2017, while its 5-year annualized growth stood at 21%. Similarly, free cash flow had a growth of 41% compared to 2017, with a 5-year annualized growth rate of 36%.

Additionally, Visa has been increasing its dividends consistently over the last decade. It has grown dividends at 20% compound annual growth rate (CAGR) over the last five years. In 2018, its year-on-year dividend growth was even higher at 27%. Its free cash flow was at a comfortable level of five times dividends. Also Visa’s dividend payout ratio, the share of earnings paid out as dividends, was low at 19%, providing room for future dividend growth.

2. Ross Stores (DIVCON Score: 69.5)

Symbol: ROST (NASDAQ)

Sector: Consumer Discretionary (Retail)

DIVCON Rating: 5 out of 5

In a close second, with a DIVCON score of 69.5, Ross Stores is the next top dividend stock pick for 2019. In 2018, the company had a total return of 5% compared to S&P 500’s negative return of -4%. In the last five years, the annualized growth rate of stock’s free cash flow and earnings per share stood at 19% and 14%, respectively.

Ross Stores has been increasing its dividends consistently over the last 24 years. Its five year annualized dividend growth rate was at 21%, while the last year’s growth rate was even more impressive at 41%. Ross Stores’ free cash flow was at five times 2018 dividends, while its dividend payout ratio is a low level of 18%.

3. Nvidia Corp. (DIVCON Score: 68.75)

Symbol: NVDA (NASDAQ)Sector: Technology (Microchip)

DIVCON Rating: 5 out of 5

With a DIVCON score of 68.75, my third top stock pick for 2019 is Nvidia. Nvidia was featured in my lists for both 2017 and 2018, and continues to have a strong dividend growth outlook as we enter 2019. Historically, Nvidia’s stock has been up by over 300% since 2016, despite falling by 32% in 2018. Considering the company’s strong fundamentals, the recent stock price decline might provide an attractive entry point for investors. DIVCON’s methodology still ranks Nvidia as a DIVCON 5 stock, with strong dividend growth potential over the next 12 months. This is because the stock’s cash flow and earnings per share grew by over 90% compared to last year, with a 5-year annualized growth rate of 41% and 22%, respectively.

Nvidia has been increasing its dividends every year since 2012, with a 5 year annualized growth rate of 14%. Despite 2018’s drop in stock price, the stock still shows strong dividend growth potential with free cash flow at 9 times dividends and a dividend payout ratio of 11%.

4. Domino’s Pizza (DIVCON Score: 67.25)

Symbol: DPZ (NYSE)Sector: Consumer Discretionary (Restaurants)

DIVCON Rating: 5 out of 5

The fourth stock in my 2019 list is a well known name, Domino’s Pizza. The world’s second largest pizza chain has a DIVCON score of 67.25. In 2018, the stock delivered a total return of 32%. In spite of the rally, the company has a high likelihood of dividend growth in 2019. Looking at Domino’s fundamentals, its earnings per share and revenue grew at impressive rates of 24% and 11%, respectively, over the last five years.

Over the long run, Domino’s annualized dividend growth rate has been 22% over the last five years. The future dividend growth is supported by 45% earnings per share growth compared to last year, a free cash flow to dividend ratio of seven and a comparatively low dividend payout ratio of 30%.

5. United Healthcare (DIVCON Score: 66.5)

Symbol: UNH (NYSE)

Sector: Health Care (Managed Care)

DIVCON Rating: 5 out of

With a DIVCON score of 66.5, my fifth top stock pick for 2019 is the managed health care firm United Health. In 2018, the company outperformed the S&P 500 with a total return of 14%. The company exhibited strong growth characteristics with free cash flow and earnings per share growing by 43% and 32%, respectively compared to last year.

United Health has also increased its dividends every year since 2010, with double digit increases each year. The company’s fundamentals support strong dividend growth potential. The free cash flow is at four times dividends while the dividend payout ratio is at 26%.

The attractiveness of dividend growth for 2019 and beyond

While stocks with high dividend payouts, or high dividend yields, can be attractive, Reality Shares’ research indicates that stocks with higher rates of dividend growth have often outperformed the market. Investors primarily chasing yield could fall into a dividend yield trap, especially in volatile market environments. The stocks selected by the DIVCON system have better growth and quality characteristics. Using a dividend growth tool like DIVCON can provide investors with an opportunity to potentially outperform the markets in 2019. And if outperforming the markets is not a good New Years resolution, I don’t know what is.

Disclosure:Eric Ervin is CEO ofReality Shares, Inc., parent company of Reality Shares indexes and ETFs. Stocks mentioned here may be included in Reality Shares indexes and ETFs.

1. Source: Bloomberg and Reality Shares. Past performance does not guarantee future results. Dividend growth quintiles are based on 5-year dividend growth for the universe of dividend payers among the top 2,000 stocks by market capitalization Filters are applied to five time periods, including 12/31/2016, 12/31/2011, 12/31/2006, 12/31/2001 and 12/31/1996. This covers a period of 25 years 1993-2017 (five non-overlapping five-year periods). Data was normalized across time frames by subtracting relevant 5-year dividend growth and 5-year total return rates of the S&P 500 Index. The first quintile ("lowest dividend growth rates") includes dividend cutters and stocks with no dividend change. Over the full period, there were 640 instances in the first quintile. Of these 295 (46%) were cutters and 116 (18%) were non-growers. Analysis was completed in 5 year intervals at 2016, 2011, 2006, 2001 & 1996.