Three Shares with Dividend Rises Worth Investing in Immediately
It's no secret that inflation has hiked up the costs of goods and services in recent years, leaving many families wrestling with the constant worry of having to spend more just to maintain their current living standards.
Like a silver lining in the cloud, there's an alluring solution to this predicament: investing in dividend stocks that offer a continuous stream of passive income to supplement your earned income. The ideal dividend stock should be a company with a robust competitive advantage and a storied history of consistently increasing dividends. It should also generate substantial free cash flow that can sustain its dividend payments.
Such dividend stock prospects would align well within your investment portfolio, providing the dividends you need to not only outpace inflation but also afford you some extra money for life's finer pleasures. Here are three promising dividend stocks to contemplate adding to your income portfolio.
1. Medtronic
Medtronic (MDT -0.20%) is a renowned company that manufactures a diverse range of medical devices for various specialties, including cardiovascular, diabetes, respiratory, spinal, and neurological. The company has consistently boosted its dividend for 47 consecutive years, with its latest quarterly dividend standing at $0.70 per share.
Revenue increased from $31.7 billion in fiscal 2022 to $32.4 billion in 2024. However, net income dropped from $5 billion to $3.7 billion during the same period due to increased costs of goods sold and interest expenses. Despite this decrease in profit, Medtronic continued to produce consistent free cash flow, averaging around $5.3 billion per fiscal year. With a dividend payout of $3.67 billion in fiscal 2024, the dividend amounted to 70% of Medtronic's free cash flow, ensuring its sustainability.
Medtronic reported earnings for the first half of fiscal 2025 as inflation begins to subside. Revenue grew by 4% year over year to $16.3 billion, while operating income increased by 10.2% to $2.9 billion. With Medtronic enjoying a lower tax expense for the period, net income surged by 36% to $2.3 billion. Free cash flow for the company increased by 41% to $1 billion, bolstering confidence in its ability to continue its impressive track record of increasing dividends.
Medtronic continued its innovative streak during this period, earning close to 120 product approvals in the past 12 months. This added to its expanding portfolio of products and devices, covering a wide range of specialties and geographies. Interim CFO Gary Corona reported that Medtronic is focused on improving its margins and boosting productivity through the centralization of operations and consolidation of factories and suppliers. He also highlighted several forthcoming product launches that have yet to fully materialize and deliver their full potential.
Lastly, Medtronic will concentrate on acquisitions to strengthen areas where it lacks or needs enhancement. These initiatives should help the company continue expanding and paying out larger dividends in the foreseeable future.
2. General Dynamics
General Dynamics (GD -0.24%) is a global aerospace and defense company with a diverse product portfolio catering to business aviation, ship construction and repair, and weapon systems, among others.
General Dynamics reported steady revenue and profit growth, alongside generating substantial free cash flow. From 2021 to 2023, revenue from products and services climbed from $38.5 billion to $42.3 billion. Earnings rose from $3.26 billion to $3.32 billion over the same period.
Free cash flow increased from $3.4 billion to $3.8 billion over the three years and averaged $3.55 billion per year, supporting General Dynamics' increasing dividends. The company has boosted its annual dividend every year for 27 years, with the most recent increase being a 7.6% year-over-year surge to $5.68 per share.
General Dynamics continued to report growing revenue and earnings for the first nine months of 2024. Revenue grew by 12.3% year over year to $34.4 billion, with operating income rising by 14% to $3.4 billion. Net income for the engineering company increased by 14% to $2.6 billion. The company also generated a positive free cash flow of $1.4 billion for the period.
General Dynamics secured key military contracts during this period. In November, one of the company's business units was awarded a seven-year contractor logistics support services contract that serves the Air Force, Navy, Marine Corps, Army, and Coast Guard. Shortly afterwards, General Dynamics was awarded a $5.6 billion contract from the U.S. Air Force to assist with modifying, integrating, and operating its Mission Partner Environments.
These promising contract wins should solidify the company's status as an essential contractor and reinforce its reputation as a reliable business capable of consistently increasing its dividends over the long term.
3. Illinois Tool Works
Illinois Tool Works (ITW -0.86%) is an industrial manufacturing company that produces products for seven verticals, encompassing automotive, construction, and food equipment.
Similar to General Dynamics, Illinois Tool Works has shown steady increases in both its revenue and net income over the years. Revenue rose from $14.4 billion in 2021 to $16.1 billion in 2023, while net income climbed from $2.7 billion to $3 billion during the same period. Free cash flow grew by a more significant extent, increasing from $2.3 billion in 2021 to $3.1 billion by 2023 and averaging $2.4 billion per annum.
The company's reliable cash flow generation has enabled it to boost its dividend consistently for nearly three decades, escalating from a mere $0.16 in 1995 to a substantial $5.42 in 2023.
For the initial nine months of 2024, Illinois Tool Works displayed mixed financial results. Although revenue marginally decreased by 1.3% compared to the previous year, accumulating to $12 billion, operating income significantly climbed near 6% to hit $3.2 billion. Net income displayed a substantial surge of 22%, reaching $2.7 billion. Moreover, the company documented a favorable free cash flow of $1.8 billion, and its annual dividend was hiked for the 29th consecutive year, amounting to $6 per share.
The company has made audacious expansion plans, disclosing its strategic objectives during its 2023 Investor Day event. Illinois Tool Works aims to grow organically by 4% to 7% between 2023 and 2030.
Acquisitions are expected to contribute to further growth, but only if they yield sufficient returns and contribute to the company's long-term organic growth objective. Two main acquisition types are planned: targeted acquisitions to bolster existing segments and initiatives to build new platforms.
By 2030, Illinois Tool Works aims to deliver a total shareholder return of between 11% to 13% annually, comprising both organic growth and a 2% to 3% dividend yield. This can be achieved through an annual earnings-per-share growth of 9% to 10%, coupled with a strategy to increase the annual dividend by around 7% annually.
In light of the rising costs caused by inflation, investing in stable dividend stocks like Medtronic can be a wise move. Medtronic, with its robust competitive advantage and consistent dividend increases, can help you outpace inflation and even afford some extra money for leisure activities.
General Dynamics, a global aerospace and defense company, has a strong financial performance and a 27-year track record of increasing dividends. Its substantial free cash flow and key military contracts suggest a reliable business capable of further dividend increases.
These examples illustrate how investing in dividend stocks can provide a steady income stream in the face of inflation, allowing you to maintain your lifestyle and potentially enjoy some financial comfort.
