First Published on June 22nd, 2023 by Bob Ciura for SureDividend
There are many was to measure the quality of a dividend stock. One way is the length of a company’s dividend history. In general, stocks that have raised their dividends for multiple years in a row have demonstrated that they are committed to rewarding investors with steadily rising dividends.
One lesser-known group of dividend growth stocks is the list of Dividend Challengers, which have raised their dividends for 5-9 years in a row.
While 5 years is not the longest history of dividend growth, it does demonstrate a history of returning cash to shareholders with dividends. It also represents a company with a profitable business model, durable competitive advantages, and a positive growth outlook.
With this in mind, we created a downloadable list of 270 Dividend Challengers.
You can download your free copy of the Dividend Challengers list, along with relevant financial metrics like price-to-earnings ratios, dividend yields, and payout ratios, by clicking on the link below:
Investors are likely familiar with the Dividend Aristocrats, a group of 68 stocks in the S&P 500 Index with 25+ consecutive years of dividend increases. Dividend growth investors should also familiarize themselves with the Dividend Challengers, which could be Dividend Aristocrats in the making.
This article will discuss an overview of Dividend Challengers, and why investors should consider quality dividend growth stocks. Additional information regarding dividend stocks in our coverage universe can be found in the Sure Analysis Research Database.
In this article
Table of Contents
You can instantly jump to any specific section of the article by clicking on the links below:
- Overview of Dividend Challengers
- Example Of A Dividend Challenger: Baxter International (BAX)
- Final Thoughts
Overview of Dividend Challengers
The requirement to become a Dividend Challenger is simple: 5-9 consecutive years of dividend growth. This is not exactly a high hurdle to clear, but it does separate dividend growth stocks from the companies that have held their dividends steady for many years. This is a subtle, but important, difference.
Companies that do not raise their dividends each year are often unable to do so because the underlying business is struggling.
While there are no proven precursors to a dividend cut, one potential red flag is when a stock freezes its dividend, particularly if that stock had previously held a long track record of hiking its dividend payout each year.
When business conditions deteriorate, companies often see their revenue and earnings-per-share decline. This could happen for a number of reasons, including a recession, escalating competition, or perhaps an unexpected event such as a geopolitical conflict or natural disaster. In any event, a company with falling revenue and earnings-per-share will likely not be able to raise its dividend.
Depending on how things go from there, the company in question might be able to return to dividend growth if its fundamentals improve.
On the other hand, if conditions worsen, the next step could be a dividend cut or suspension. A dividend freeze might be the first step in this process, which is why investors should pay attention if a dividend growth stock goes longer than a year without raising its payout.
Example Of A Dividend Challenger: Baxter International (BAX)
Baxter International develops and sells a variety of healthcare products, including biological products, medical devices, and connected care services devices used to monitor patients. Its products are used in hospitals, kidney dialysis centers, nursing homes, doctors’ offices, and patients at home under physician supervision. Baxter has paid dividends to shareholders for 32 consecutive years.
On April 27th, 2023, Baxter International reported Q1 2023 results for the period ending March 31st, 2023. For the quarter, revenue fell 1.6% to $3.65 billion, but this was $50 million more than expected. Adjusted earnings-per-share of $0.59 compared unfavorably to $0.93 in the prior year, but was $0.06 ahead of estimates.
Baxter takes the top spot among the best dividend growth stocks due to its expected earnings and dividend growth, and attractive expected returns. Total returns are estimated at 17.3% per year over the next five years.
Click here to download our most recent Sure Analysis report on Baxter (BAX) (preview of page 1 of 3 shown below):
The various lists of stocks by length of dividend history are a good resource for investors who focus on high-quality dividend stocks. In order for a company to raise its dividend for at least 5 years, it must have durable competitive advantages, the ability to generate consistent profits even during recessions, and shareholder-friendly management that is dedicated to returning cash to investors.
They also have long-term growth potential and the apparent ability to raise their dividends in the future.