Want to Retire Rich? 3 Dividend Stocks That Keep Boosting Their Payouts

For investors who have most of their savings tied to growth stocks, 2020 was a banner year. But many are now wondering what to do now. While demand remains strong for mega cap technology companies, their short-term outlook has become uncertain as bond yields surge.

That potential threat is forcing investors to cut holdings of high-growth stocks amid fears that the end of an era of very low interest rates could be approaching. Should that occur, it would make the soaring valuations of mega cap tech stocks harder to justify. That shift in sentiment has already started costing growth investors dearly. The NASDAQ 100 capped a third straight week of declines, shaving $1.6 trillion off in market value during that period.

These sorts of wild moves have ramifications for retirees if they're holding numerous shares of a handful of mega-cap tech stocks in their retirement portfolios.  According to a recent report by Bloomberg, technology stocks now make up a large percentage of some of the most popular, actively managed mutual funds in retirement savings plans.

The $132 billion Fidelity® Contrafund® Fund, for example, has 31.3% in six stocks—the same heavyweights that rule the S&P 500, including Apple (NASDAQ:AAPL), Amazon (NASDAQ:AMZN) and Facebook (NASDAQ:FB). As of Dec. 31, these stocks are almost 24% of the fund's holdings, the report says.

Therefore, we always recommend that retirees keep their portfolios diversified, with some exposure to solid-quality dividend paying stocks which are represented in the Dow Jones Industrial Average. These blue chip companies, continually pay dividends—and in most cases keep hiking their payouts to beat inflation, providing more cash to retirees. 

Below, three top dividend-growth stocks worth adding to your buying list in order to keep earning increasing income every year.

1. Home Depot/h2

Home improvement giant Home Depot (NYSE:HD) has paid uninterrupted dividends for more than 30 years while also recording 20%+ annual dividend growth over the trailing 20-year period. 

Last month, the Atlanta-based retailer boosted its quarterly dividend by 10% to $1.65 a share from $1.50. The stock, which yields 2.6%, has a very manageable payout ratio of 50%, suggesting there's a lot of room to offer future dividend increases, especially when its business is on a strong growth path.

In the most recent quarter, the same-store sales in the U.S., a key measure in retail performance, rose 25%—better than the consensus estimate of 19.1%. The home-improvement chain is well-shielded from the e-commerce onslaught as many of its products are cumbersome, and thus not economical to ship to individual consumers. With that, it has a huge lineup of specialized products for contractors who make up a significant and growing part of its customer base.

2. Visa /h2

The global pandemic has forced many companies to cut or suspend their dividends, creating more uncertainty for fixed income investors. Still, plenty of companies have continued their dividend paying streaks, thanks to durable businesses and very strong cash-generation capabilities.  

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One such enterprise is the payment behemoth Visa (NYSE:V) which, despite facing adverse business conditions during the pandemic, as people cut their travel spending, hiked its payout more than 6% to $0.32 a share quarterly. 

If one were to judge the stock by its paltry 0.6% yield, Visa doesn’t look like an attractive dividend pick. But that doesn’t provide complete picture.

Visa has a 20% payout ratio, which is extremely sustainable, offering the company more room to grow future payouts. Just in the past three years, Visa's dividend has grown almost 80%. Over the past five years, the stock returned 177% in total returns.

As the pandemic becomes contained and people resume normal spending, Visa is likely to resume its double-digit dividend growth. That makes it a good stock to buy now and hold in your portfolio.

3. Coca-Cola/h2

Atlanta-based food and beverage giant Coca-Cola (NYSE:KO) is yet another solid dividend-growth stock to buy now and hold over the long-run. 

Like many major consumer brands, Coca Cola is taking a hit on its sales due to the COVID-19 pandemic as revenue from amusement parks and theaters dried up during lockdowns. But the company’s balance sheet remains strong, and management is confident in its liquidity position.

As well, at a time when health-conscious consumers are shifting away from sugary drinks, the company is expanding its healthy offerings. As part of its push to grow beyond its namesake brand and become a “total beverage company,” Coke is acquiring startup beverage companies to resonate better with health-focused customers and find new areas of growth. Its recent investments include Honest Tea, Fairlife Dairy and Suja Life LLC.

The company’s latest investor presentation assured investors about its commitment to dividends which remains a top priority as KO strives to grow its dividend as a function of free cash flow, with 75% payout ratio over time. 

At $50.79 a share, Coke’s stock is yielding 3.31% annually. That return might not look too exciting, but the company has a long track record of hiking its payout—for 58 consecutive years now. Its $0.42 a share quarterly dividend has more than doubled over the past five years.

Written By: Investing.com