3 Dividend Growers With Good 2023 Growth Prospects

Key Points

• The S&P 500 Dividend Aristocrats are holding up relatively well year-to-date.
• Target has kept its dividend increase streak intact at 50 years.
• Analysts are forecasting 32% earnings growth next year for lithium producer Albemarle Corporation.
• Clorox's strong brand portfolio and easing cost inflation are expected to drive improved results next year.

In what has been a tough year for growth investors, few equity categories have provided the spark counted on for portfolio appreciation. The energy sector is one, but it's a sea of red almost everywhere else.

This means two things: 1) many brokerage accounts will be limping into 2023 with lower values and 2) as the saying goes, ‘it’s all relative’ — as in relative performance.

And with the market bracing for a recession, consumer cyclicals and flashy technology names could have another tough year ahead. Stable growth might be the name of the game.

A great place to find stocks with solid fundamentals that support dividend payouts is the S&P 500 Dividend Aristocrats — companies that have increased their dividend for at least 25 consecutive years. This subset of the popular large cap index is holding up relatively well year-to-date, down -3.9% compared to down -15.3% for the S&P 500. 

Investors could continue to gravitate toward the Aristocrats in the coming months as economic uncertainty looms. These three dividend growers are among our favorites because of their healthy 2023 earnings growth forecasts. 

Will Target’s Earnings Recover in 2023? 

Target Corporation (NYSE: TGT) is projected to post another sharp drop in profits this quarter as the retailer continues to work through an inventory glut. On the bright side, Target will have more manageable sales comps in contrast to this year when results were pit against abnormally high pandemic sales. 

Wall Street’s earnings estimates for 2023 imply 75% growth over what will be a dismal 2022 performance. This along with silver linings from the company’s third quarter report suggest better times are ahead. Market share was maintained or increased across all five merchandise categories, including food and beverage which gained share every week during the quarter. This means more shoppers are turning to Target for everyday essentials. In a tough economy, the stores are likely to remain a relevant one-stop destination for food, household staples and affordable clothing.

Despite the recent profit setback, Target has kept its dividend increase streak intact at 50 years. Over the last five years, the dividend has increased at a 6.5% annual rate. A 2.6% forward yield and expectations of an earnings rebound put the bullseye on Target as a 2023 comeback candidate.

What is a Good Lithium Stock?

Albemarle Corporation (NYSE: ALB) doesn’t have a large forward yield (0.6%), but the dividend has been increased in each of the last 28 years. And with less than 10% of profits paid out as dividends, shareholders can expect plenty more raises ahead.

The lithium producer’s outlook for growth is also encouraging. Analysts are forecasting 32% earnings growth next year driven by higher volumes and elevated commodity prices. Lithium carbonate prices are trading near record levels amid soaring demand for electric vehicles globally. 

Particularly in China, government decarbonization efforts are expected to keep lithium demand strong as the decade progresses. The U.S. recently unveiled a plan to provide $2.8 billion in grant money to help domestic battery manufacturers boost output. In turn, this will support demand for battery inputs — including lithium.

After reporting a sevenfold increase in Q3 earnings and with the Street anticipating another strong performance in Q4, Albemarle will have the wind at its back heading into 2023. While the lithium business gets all the attention, the company’s other two segments — Bromine Specialties and Catalysts — are also growing nicely. 

Albemarle’s scale and low-cost lithium production will make it a key cog in U.S. electric vehicle production for years to come. A rising dividend along the way will make this EV play well worth the ride. 

Is Clorox a Good Dividend Stock?

The Clorox Company (NYSE: CLX) hasn’t performed as you’d expect a defensive name to do in 2022, but things look better next year. The Street’s forecast for 2023 earnings per share (EPS) equates to 28% growth. 

Similar to Target, this year Clorox faced tough comparisons to the pandemic quarters of 2021 when cleansers were flying off the shelves. As demand has normalized and costs have risen, profitability has been less than squeaky clean.

Looking into next year though, the company’s strong brand portfolio and easing cost inflation are expected to drive improved results. Cost savings initiatives and product innovation in conjunction with Clorox’s IGNITE plan should also support better financials. 

Although bleach and household staples often come to mind with Clorox, its biggest product segment is Health and Wellness. Unlike the sanitization frenzy, trends associated with healthier living are likely to persist.

In the meantime, investors can bank on a 3.2% yield that is among the highest in the consumer staples sector. Clorox has boosted its dividend for 35 consecutive years and, although the above-peer debt level is something to monitor, management consistently makes shareholder returns a priority.