We Are the Champions: 3 Dividend Growers Wall Street Loves

Key Points

• Linde has a diversified customer base that provides a constant source of demand, translating to steady cash flow.
• General Dynamics is outperforming because it has a leading position in several aerospace and defense markets.
• Wall Street is forecasting 8% EPS growth for Stryker next year.

Queen’s legendary 1977 rock anthem “We Are the Champions” was once deemed by scientists to be the catchiest song in popular music history. To this day, it is often heard in crowning moments at sports stadiums and in upbeat TV advertisements.

In the investment world, Freddy Mercury’s recognizable tune can also be applied to the accomplishments of the Dividend Champions. These are companies that have at least 25 years of consecutive annual dividend increases. While less regal than the 50-year Dividend Kings, this set of roughly 130 stocks is a great place for income investors to find high-quality dividend payers.

The average yield for the current list of Dividend Champions is 2.4% compared to 1.7% for the S&P 500. More importantly, these companies have the financial strength that supports extensive dividend histories — and future payout hikes. 

Unfortunately, there aren’t yet any ETFs that replicate the Dividend Champs. Building a custom portfolio that includes all names is possible but potentially cost-prohibitive. 

An alternative way to gain exposure to these dividend growers is to invest in a handful of companies across sectors for diversification. But how to narrow down the choices? 

Bullish Wall Street sentiment is a good place to start. These are a few of the names research firms like the most.

What Makes Linde a Good Long-Term Investment? 

U.K.-based Linde plc (NYSE: LIN) has raised its dividend for 29 straight years. In 2018, it merged with Praxair to become the world’s largest industrial gas producer. The company sells to a range of industries from chemicals and manufacturing to food and healthcare. A diversified customer base provides a constant source of demand that translates to steady cash flow throughout the economic cycle.

It is Linde’s strong foothold in a variety of defensive markets that allow it to generate reliable revenue even when the broader economy slows. Third-quarter revenue grew 15% to $8.8 billion and adjusted EPS grew 14% to $3.10. Both figures surpassed expectations and gave management the confidence to raise its full-year guidance.

Linde is quickly climbing back toward its January 2022 all-time high of $352.18 but could be on its way to a new record. Ten analyst price targets fall within the $360 to $380 range. Aside from the sturdy balance sheet and sustainable dividend, Wall Street is constructive on Linde’s $13 billion project backlog, most of which is from blue-chip customers.

Which Defense Stock Does Wall Street Prefer?

Compared to rival Raytheon, General Dynamics Corporation (NYSE: GD) is more in favor of sell-side analysts both in terms of stock rating and upside. Last week Citigroup began coverage of the defense contractor with a buy rating and $298 target that implies 20% upside. That says a lot considering the stock is already up 19% this year following a 40% advance in 2021.

General Dynamics is outperforming because it has a leading position in several aerospace and defense markets that are experiencing solid growth. Better-than-expected third-quarter earnings were driven by demand for the Gulfstream aircraft and the U.S. Navy doing more business with General Dynamics for the 20th straight quarter. Contracts for the Virginia-class attack submarine and the Columbia-class ballistic-missile submarine represent a large chunk of a $126 billion backlog.

The quarterly dividend was recently increased by 6% to stretch General Dynamics dividend hike streak to 26 years. That makes it a new member of the Dividend Champions but one that will likely be around for a while. Management’s plan for modest revenue growth and margin expansion combined with a 36% payout ratio point to more dividend increases to come.

Is Stryker a Good Dividend Stock?

Medical device maker Stryker Corporation (NYSE: SYK) is on a 28-year dividend increase streak. It is coming off a solid third-quarter performance highlighted by accelerated organic sales growth led by the MedSurg and Neurotechnology division. Demand for endoscopy, neurocranial, and other medical products was particularly strong in the Asia-Pacific region. 

For Stryker to have a second strong growth contributor alongside its core orthopedics business is an encouraging development. The stock has been weighed down by increased operating costs and foreign currency effects that have cut into profits. But with electoral procedure volumes rising, several new products launching and margin pressures expected to ease, 2023 is shaping up to be a better year. 

After a minimal bottom-line improvement expected this year, Wall Street is forecasting 8% EPS growth next year. This means Stryker is trading at 25x next year’s earnings, which sets it up for significant multiple expansion back to its five-year average P/E above 40x. The dividend champ has another compelling streak heading into the new year — its first three month winning streak since August 2021.