2 more high-quality dividend growers to buy on the dip

February 07, 2024 at 07:00 AM EST

Dividend Stocks to buy now

Many dividend growth stocks have seen significant upward pressure in their price action over the last few years. These stocks, including W.W. Grainger (NYSE: GWW) and Church & Dwight (NYSE: CHD), provide stable and reliable income that is compounded by the outlook for distribution growth.

Neither pay sector-leading yields because both are highly valued, but there is a reason. Both have superior dividend health compared to their peers, making them better plays for investors with longer time horizons. The takeaway for today is that both reported solid Q4s, gave favorable outlooks, and have analysts' support, yet their stock prices are coming under pressure, setting up a dip-buying opportunity.

W.W. Grainger, a King of Dividend Kings

W.W. Grainger is not a high-yielding Dividend King or even a high-yielding stock with a payout near 0.75%, but it has what most other kings don’t: a robust outlook for future dividend increases. This company is paying only 20% of its earnings after 52 consecutive years of dividend increases, leaving it room to continue its trend for another 50+ years. The CAGR is also impressive; the 6% it has been running for the last few years is about triple the group average, and investors can expect it to be sustained in 2024 and 2025.

The Q4 results were solid and came with favorable guidance for 2024. The company’s revenue fell short of the consensus, but the miss is slim and offset by margin strength. The $8.33 in adjusted earnings is up 17% YOY compared to the 5% top-line advance, and margin strength is expected to continue. The guidance includes revenue and profits in a range bracketing the Marketbeat.com consensus with consensus in the lowest quartile. Operating margin is expected to widen over 100 basis points over the Q4 results, providing leverage for capital returns.

Grainger repurchases shares in addition to paying dividends. The guidance for 2024 includes $1 billion in planned repurchases or about 2% of the market cap. Repurchases in F2023 reduced the count by 1.95% and are helping to support the stock price. Analysts also support the stock price, although the consensus target lags behind price action. The Marketbeat.com consensus figure is up more than 25% YOY, including several new revisions. Those are all positive and include the new high target of $995 set by Baird. Baird rates this stock at Outperform.

W.W. Grainger stock chart

Church & Dwight is on track to be crowned Dividend King

Church & Dwight is among the highest-valued consumer staples stocks, trading at 28X its earnings. That’s in alignment with Clorox (NYSE: CLX) and greater than the 24X you pay for Colgate-Palmolive (NYSE: CL), and the reason is dividend quality. The yield is among the lowest in the group because of the valuation, about 1.15%, but it is the healthiest with the most robust outlook for growth. This company pays only 35% of its earnings consensus after 28 years of increases, and it is a growing business; increases are expected for many more decades.

Church & Dwight sustained a mid-to-single-digit growth pace in Q4 and is forecasting the same for 2024. The guidance forecasts top-line growth to slow to about 4% but for the margin to widen. Earnings are expected to be +8.5%, suggesting the mid-single-digit distribution growth pace will continue, and the payout ratio will decline.

The analysts’ activity favors higher share prices. The sentiment is pegged at a firm Hold, and the consensus target is up 12% compared to last year, including several post-release updates. The consensus lags behind the market, but the new revisions suggest a 5% to 10% upside.

The dip in CHD stock was short-lived. The stock price is moving higher and on track for a 2-year closing high. The next target for significant resistance is near $103.50, which may cause the next targetable dip. If not, a move to new highs would indicate an increasing bullish sentiment and could take this stock to a new all-time high by mid-year.

CHD stock price chart