Dividends are a gift that keeps on giving. Not only do they provide a regular tangible return on your investment, but they also constitute a source of passive income that in many cases will increase as the years go by.
Better still, if you reinvest those payouts into the stocks that paid them, you'll gain more shares, providing you with additional dividends, and compounding your portfolio's growth. Repeating this cycle over the years and decades can leave you with a sizable portfolio.
The key is to select companies that generate copious amounts of free cash flow and have solid track records of increasing their payouts. With that in mind, here are four dividend stocks that you should include in your portfolio.
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Dover Corp.
Dover Corp. (DOV -1.35%) manufactures equipment and components such as consumable supplies, aftermarket parts, and digital solutions, among others. The company has a strong track record of free cash flow generation and has also raised its dividend annually for more than six decades without fail.
In 2023, Dover's revenue and net income both dipped by 0.8%, to $8.4 billion and $1.1 billion, respectively. Free cash flow, however, shot up by nearly 96% to $1.1 billion. This enabled Dover in August to increase its quarterly dividend to $0.51 per share, up from $0.505 a year ago, making 2023 the 68th consecutive year that it increased its payout.
In the first quarter of 2024, Dover's revenue grew by 1% year over year to $2.1 billion, but free cash flow dipped to 6% of revenue because of working capital investments. Management expects Dover's free cash flow to increase to between 13% to 15% of revenue for 2024, which should allow the company to once again increase its dividend.
Parker-Hannifin
Parker-Hannifin (PH -1.17%) also has an impressive track record of dividend increases. The motion and control technologies company has not only been reporting solid financial results recently, but is also well-known for its consistent free-cash-flow generation.
For the first nine months of its fiscal 2024 (a period that began July 1, 2023), Parker-Hannifin's revenue rose 5.5% year over year to $14.7 billion. Net income surged by almost 50% to $2.1 billion, and free cash flow rose 22% to $1.9 billion.
This enabled the company in April to up its quarterly dividend by 10% year over year to $1.63 per share, bringing its streak of increases to 68 consecutive years. Parker-Hannifin also increased its guidance for fiscal 2024 by projecting a free cash flow of $3 billion.
The business is seeing strong demand from the aerospace sector now that air travel has recovered to pre-pandemic levels, allowing it to enjoy healthy margin expansion. With continuous free cash flow generation, Parker-Hannifin should be well-positioned to maintain its stellar dividend-boosting track record.
Coca-Cola
Coca-Cola (KO -0.19%) is a familiar name to most people because of its iconic beverages. What some may not know is that it is also an extremely cash-generative business that has reliably increased its dividends over the years.
Case in point: The soft drinks giant's revenue rose 6% in 2023 to $45.8 billion while net income climbed 12% to $10.7 billion. Free cash flow came in at $9.7 billion, up slightly from the $9.5 billion it churned out in 2022.
Coca-Cola's admirable performance continued in Q1 2024. Revenue edged up 3% year over year to $11.3 billion and net income rose 2% to $3.2 billion. Free cash flow for the quarter came in at $158 million, a reversal from the negative free cash flow of $116 million in the prior year.
Earlier this year, the board of directors upped Coca-Cola's quarterly dividend by around 5.4% to $0.485, marking the 62nd consecutive year of dividend increases for the beverage company. With healthy demand for its products and its track record of free cash flow generation, Coca-Cola is a dividend stalwart that you can count on to keep increasing its payouts.
Altria Group
Tobacco maker Altria Group (MO -0.42%) sells popular cigarette brands such as Marlboro as well as smoke-free brands such as the NJOY vape and Copenhagen tobacco.
Altria has been able to generate dependable free cash flow, which has allowed the business to steadily raise its dividends over the years. In 2023, it generated free cash flow of $9.1 billion, up nearly 13% year over year. In Q1 2024, Altria churned out $2.8 billion of free cash flow, a 3% dip from the prior-year period's $2.9 billion.
The company's strong free cash flow generation allowed it to raise its quarterly dividend by 4.3% to $0.98 per share in October -- a hike that was in line with the goal of mid-single-digit percentage annual dividend growth that management presented on its most recent investor day. 2023 was Altria's 58th consecutive year of dividend increases.
Back in March, management agreed to sell some of its stake in alcohol giant Anheuser-Busch InBev. This partial sale will trim its ownership in AB-InBev to 8.1%. Altria will use the $2.4 billion this sale raises to buy back its own shares. In addition, Altria management has reiterated its commitment to increase its dividend payouts by mid-single-digit percentages annually through 2028.
