The 3 S&P 500 Stocks With the Fastest-Growing Dividends

Heading into 2023, the S&P 500 stocks averaged 6,5% dividend growth over the previous five years. In Q1 2023, the average dividend growth of the index was 10.07%, the fourth consecutive quarter in double digits. 

In Q1 2023, according to S&P Dow Jones Indices, U.S. common dividend increases were $19.7 billion, 21.0% higher than Q4 2022 but down 28.8% from Q1 2022. The net 12-month March 2023 indicated dividend gain was $59.7 billion, compared to $70.1 million in March 2022.  

“Dividend payments continued at record levels and are expected to continue to do so for 2023. However, the size of the increases have declined and are expected to remain modest for the year as concerns over decreased consumer spending and an economic slowdown have increased,” said Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices. 

I’ve been tasked with coming up with three S&P 500 stocks with high dividend growth. Here are my choices.  

Cigna (CI)

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According to Bankrate.com, Cigna (NYSE:CI) has the second-best S&P 500 stock for 5-year dividend growth, up 216.6%. It most recently increased its quarterly dividend by 10% to $1.23 a share. Its annualized rate of $4.92 yields 1.8%.

In Q1 2023, its adjusted revenues were $46.5 billion, 5.4% higher than a year earlier. Revenues were higher due to strong contributions from its Evernorth Health Services and Cigna Healthcare segments, offset by lower revenues from divested businesses. 

Evernorth is the insurer’s pharmacy benefits business, while Cigna Healthcare provides health benefits to millions of Americans. Evernorth generated $36.2 billion in revenues, while Cigna Healthcare’s revenues were $12.7 billion. The latter’s pre-tax adjusted margin was 8.8%, more than double the former’s. This makes it one of those top S&P 500 stocks.

For all of 2023, Cigna expects adjusted revenues of at least $188.0 billion and adjusted income from operations per share of at least $24.70. Based on this per-share figure, Cigna’s payout ratio is a low 19.9%.

 Huntington Ingalls Industries (HII)

Person holding smartphone with logo of US company Huntington Ingalls Industries Inc (HII) on screen in front of website Focus on phone display

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Huntington Ingalls Industries (NYSE:HII) stock hasn’t done much in the past five years, up just 1.7%. That compares unfavorably with the index’s 61% return over five years.

While its shares haven’t done well, its 5-year dividend growth of 47.2% is the fifth-best of all S&P 500 companies. In November 2022, it increased its quarterly dividend by 5.1%, to $1.24 a share, from $1.18. Its annualized dividend payment of $4.96 yields 2.3%.

The Virginia-based military shipbuilder finished Q1 2023 with a total backlog of $47.0 billion. It added $2.6 billion in new contracts during the quarter. Based on its guidance for 2023, it expects revenues of $11.0 billion and free cash flow of $425 million at the midpoint of its outlook. So, it’s got the equivalent of 4.3 years worth of revenue ahead from its backlog.   

So, there are two reasons why I’ve selected this single-digit revenue grower. 

First, its revenues are as stable as they come. The Department of Defense’s (DoD) proposed budget for fiscal 2024 is $842 billion. You can’t get a better customer than the DoD. 

Secondly, based on a market capitalization of $8.8 billion and 2023 free cash flow of $425 million, it has a free cash flow yield of $4.8%. I consider anything between 4-8% to be fair value territory. 

You’re not going to be able to retire on HII stock. However, as a defensive position you add to whenever it falls below $200, your yield on cost will continue to get better over time. 

Lennar (LEN)

An image of US currency. dividend stocks for steady income

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Homebuilders stocks like Lennar (NYSE:LEN) are back in business after experiencing a serious correction in 2022. Up 37% year-to-date and 81% over the past 52 weeks, the company’s 1.2% yield is deceptively attractive. Lennar’s five-year dividend growth of 53.8% is the eighth-highest in the S&P 500. 

Yahoo Finance recently reported on Lennar benefiting from increased demand, quoting the Baron Real Estate Funds’ first-quarter commentary. I’m always interested in reading what Ron Baron’s firm says

“It [Lennar] is valued at only 1.3 times tangible book value versus its more typical historical valuation range of 1.5 to 2.5 times tangible book value,” Baron’s commentary stated

New home buyers have come out of hiding in recent months, buying new builds at lower prices than existing home resales. With interest rates considerably higher, consumers view new builds as the better value in the current environment.

In reality, America and virtually every place on earth have a housing shortage. That’s a fact that’s not going away anytime soon. Homebuilder stocks like Lennar might experience periods of significant volatility, but you should do very well owning LEN stock over the long haul.

On the date of publication, Will Ashworth did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia.

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