3 Dividend Growers to Grow Your Portfolio

There are different approaches to growing a portfolio. Some investors like to focus on high-flying technology stocks to generate capital appreciation. Others prefer to get their growth in a steadier fashion by investing in companies that have a history of increasing their dividend payments.

Here we look at a few of the more interesting companies that fall into the latter category. All three stocks have bumped up their dividends for 40-plus years—and have the financial strength that suggests they could continue doing so for at least the next 40 years.  

Is Archer Daniels Midland's Dividend Sustainable?

In addition to growing agricultural products Archer Daniels Midland (NYSE:ADM) has been growing its dividend in each of the last 46 years. The producer of corn, wheat, cocoa and other food and beverage ingredients has been able to raise its dividend because it generates steady earnings growth.

Archer Daniels Midland has been a standout performer in an industry that has struggled in recent years due to oversupply conditions and tariff headwinds. In fact, over the last five years, the company's 12.5% EPS growth rate has outpaced that of the S&P 500 index.

Moreover, a manageable debt level that currently accounts for 29% of the capital structure translates to low interest expenses and a greener harvest for dividend hungry shareholders.

And since humans and livestock alike have a steady need for food, Archer Daniels Midland very much fits the consumer defensive stock mold. Slow and steady wins the race when it comes to this stock.

Yet the nearly 100-year-old feedstock business is showing that you can teach an old dog new tricks. It recently realigned its business into three segments - agriculture services & oilseeds, carbohydrate solutions, and nutrition to mesh with global trends in health and wellness. The carbohydrate division is experiencing particularly strong profit growth due to increased demand for starches for food and alcohol for hand sanitizers.

Archer Daniels Midland currently offers a dividend yield of 3% which is quite a bit more generous than the average yield of the consumer staples sector. It is also a good value at current levels. The stock trades at 14.5 forward earnings compared to its peer group average P/E of 16x.

Will Target Increase its Dividend?

Target (NYSE:TGT) has been a standout performer during the pandemic with much of the success tied to its pickup and delivery services. This has made it easy for the retailer to extend its streak of dividend increases to 49 years. This summer Target hiked its dividend by 3%.

Not only have Target shareholders collected a $2.66 per share dividend payment over the last four quarters, but they have enjoyed a 45% rise in the share price. Is it too late to buy this surging retailer turned e-commerce giant?

Target stock is trading around an all-time high and at 21x forward earnings compared to its five-year historical average P/E around 15x. While some would argue the premium valuation is warranted given the recent growth, there is a better entry to be had for new investors. A low volume pullback to the 50-day moving average, however, is a good target for initiating a Target position.

Target's dividend growth rate has been arguably stingy over the last five years at less than 5%. But given the recent surge in cash flow and probable staying power of strong online shopping demand in the post-pandemic economy, there's a good chance we'll see the dividend growth rate accelerate over the next few years.

Target exited the recent quarter with a 60% higher cash position ($7.3 billion) than it had just three months prior. With a small current debt balance and 38% dividend payout ratio, there's still plenty of room to spread the dividend love to shareholders.

Meanwhile, investors can expect a blowout holiday quarter from Target when its reports in early March. The company has been quick o adjust to the unusual shopping environment by offering "Black Friday Now" deals that have been running since November 1^st.

Is PPG Stock a Buy?

Bringing up the rear in our dividend growers list is PPG Industries (NYSE:PPG). The paint and chemicals supplier has laid it on thick over the years when it comes to dividends. It too has increased its dividend for 49 consecutive years and has a share buyback program that last year returned $325 to shareholders.

Over the years PPG has funded its dividend by generating growth both organically and through acquisition. The company has built itself into a global powerhouse in the residential and industrial coatings space with a presence in about 70 countries. Its business model is also well-diversified in terms of product line as PPG holds the leading market share in several paint and coating categories.

In the most recent quarter PPG's cash balance jumped 35% year-over-year, an encouraging sign for continued dividend growth. This was largely attributed to cost savings from restructuring its underperforming markets.

Aside from the rising dividend, the most compelling part of the PPG story is its exposure to emerging markets. More than 30% of the Pittsburg-based company's sales come from regions that are forecast to grow at a faster rate than overall global GDP.  

However, PPG stock is not cheap at the moment given the 26x forward earnings multiple. A pullback to the bottom range of the Bollinger band like what we saw in late October would be a more appropriate time to jump in on PPG and start banking those rising dividends.