Building a portfolio of high-yield dividend stocks can provide investors with a steady stream of income. Focusing on dividend growth stocks within the S&P 500 is a great way to target established, blue-chip companies with the potential for rising payouts.

The S&P 500 Dividend Aristocrats index tracks companies that have increased their dividends for at least 25 consecutive years. However, investors can find promising dividend growth opportunities even among companies with shorter dividend histories.

This article highlights 10 of the top S&P 500 stocks for dividend growth to anchor a high-yield income portfolio in 2023 and beyond.

Screening for the Best Dividend Growth Stocks

Successful dividend growth investing requires analyzing stocks across several key factors:

• Dividend History – Favor companies with steady dividend growth over time rather than stocks with inconsistent dividend records.
• Payout Ratios – Look for reasonable payout ratios between 40-60%, implying dividends are sustainable. High payout ratios above 80% warrant caution.
• Earnings Growth – Rising earnings provide the fuel for companies to keep increasing their dividends each year. Steady profit growth is key.
• Cash Flow Generation – Analyze cash flow statements to ensure the company generates ample cash flow to support the dividend.
• Recession Performance – The best dividend growers perform consistently even during recessions when profits decline.
• Business Quality – Leading brands with competitive advantages that operate in stable industries tend to make ideal long-term dividend holdings.

With these criteria in mind, here are 10 of the best S&P 500 dividend growth stocks for high-yield income investors in 2023:

1. Abbott Laboratories

• Sector: Healthcare
• Dividend Yield: 1.9%
• Consecutive Dividend Increases: 50 years

Abbott Laboratories is a highly diversified healthcare company with leading positions in nutrition, diagnostics, medical devices, and branded generic drugs. Its portfolio includes ubiquitous brands like Ensure, Glucerna, Similac, and Pedialyte nutritional shakes.

Abbott has paid dividends for 132 consecutive years and grown its payout for half a century, marking one of the longest growth streaks among S&P 500 stocks. Earnings are projected to rise over 6% annually over the next 3-5 years, providing ample room for continued dividend increases.

2. Medtronic PLC

• Sector: Healthcare
• Dividend Yield: 3.3%
• Consecutive Dividend Increases: 45 years

Medtronic is the largest medical device manufacturer in the world. It sells products used by hospitals, physicians, clinicians, and patients across 150 countries. Medtronic’s devices span segments including cardiac rhythm management, heart valves, stents, insulin pumps, surgical tools, and neurostimulation.

Medtronic has increased its dividend for 45 consecutive years, including a recent 8% boost in June 2022. Its reasonable payout ratio near 50% ensures plenty of safety and growth potential from the current 3.3% yield.

3. Walmart

• Sector: Consumer Staples
• Dividend Yield: 1.6%
• Consecutive Dividend Increases: 49 years

Walmart is the largest retailer in the world, operating over 10,500 stores globally that serve roughly 230 million customers per week. The company has raised its dividend for 49 consecutive years even as it invests heavily in e-commerce and omnichannel capabilities to adapt its low-cost value proposition.

Walmart maintains a reasonable payout ratio below 50%, leaving ample capacity for further dividend growth. The company looks poised to continue delivering steady payout increases supported by its wide economic moat and recession-resistant staples sales.

4. Nucor Corporation

• Sector: Industrials
• Dividend Yield: 1.6%
• Consecutive Dividend Increases: 49 years

Nucor is North America’s largest steel manufacturer with an industry-leading recycled content usage rate north of 90%. The company has paid dividends for 194 consecutive quarters dating back to 1973 while growing its payout for 49 straight years.

Nucor operates an efficient, low-cost mini mill production strategy that helps insulate it from import competition. Construction, automotive, heavy machinery, and renewable energy demand should support steady earnings and dividend growth going forward.

READ ALSO: Top 10 High-Yield Dow Dividend Stocks

5. Federal Realty Investment Trust

• Sector: Real Estate
• Dividend Yield: 4.4%
• Consecutive Dividend Increases: 54 years

Federal Realty is one of the oldest REITs in the market, having been founded in 1962. It owns over 100 premier retail properties with 3,400 tenants located mostly across coastal U.S. cities and suburbs.

Federal Realty has increased its dividend annually for over half a century, the longest streak among REITs. Its high-quality assets in affluent communities have delivered excellent rent collection and occupancy through recessions. Income investors can count on this REIT’s exceptional dividend growth record.

6. United Healthcare Group

• Sector: Healthcare
• Dividend Yield: 1.3%
• Consecutive Dividend Increases: 13 years

UnitedHealth Group is one of the largest and most diversified healthcare companies in the world. It provides health insurance and services to customers across employer-sponsored, individual, Medicare, Medicaid, and military channels.

UnitedHealth has increased its dividend for 13 consecutive years since first initiating a payout in 2010. Its dividend has compounded at a 20% annual growth rate over that period as earnings steadily rise. Continued growth moving forward appears highly likely supported by the non-cyclical healthcare industry.

7. Texas Instruments

• Sector: Information Technology
• Dividend Yield: 3.1%
• Consecutive Dividend Increases: 19 years

Texas Instruments is one of the world’s largest designers and sellers of semiconductors. It operates a portfolio of analog and embedded chips powering electronics in diverse end markets such as automotive, personal electronics, and industrial equipment.

The company has grown its dividend for 19 consecutive years since initiating a payout in 2004. Its reasonable payout ratio near 50% provides plenty of room for that growth to continue as Texas Instruments benefits from semiconductor demand across many essential electronics categories.

8. NextEra Energy

• Sector: Utilities
• Dividend Yield: 2.1%
• Consecutive Dividend Increases: 27 years

NextEra Energy is a regulated electric utility providing service to 5.6 million customers across Florida. It also owns NextEra Energy Resources, the world’s largest producer of wind and solar energy.

NextEra has grown its dividend for over 25 consecutive years, including a 10% increase in 2022. Rate base growth from long-term capex plans and increasing renewable energy capacity provide clear earnings visibility supporting continued dividend growth going forward.

9. Chubb Ltd.

• Sector: Financials
• Dividend Yield: 1.9%
• Consecutive Dividend Increases: 29 years

Chubb is the world’s largest publicly traded property and casualty insurance company. It provides customers with commercial, personal, and specialty P&C insurance products in 54 countries globally.

Chubb has grown dividends at a 9.7% annual rate over the past decade. The insurance industry’s stability, Chubb’s disciplined underwriting, and a payout ratio near 30% provide an attractive stock for income and dividend growth for years ahead.

10. American Water Works

• Sector: Utilities
• Dividend Yield: 1.6%
• Consecutive Dividend Increases: 13 years

American Water Works is the largest public water and wastewater utility in the United States, serving over 14 million people across 46 states and Ontario, Canada.

Water utilities enjoy very consistent demand and limited competition given their regional monopoly jurisdictions. American Water Works has capital plans to invest $13-16 billion through 2026, supporting 7-9% annual earnings growth to fund ongoing dividend increases.

READ ALSO: The Ultimate Guide to High-Yield Dividend Stocks

Build a High-Yield Portfolio of Dividend Growth Stocks

Focusing on dividend growth stocks with characteristics like these provides a solid foundation for a high-yield portfolio. Companies with durable competitive advantages, consistent earnings, strong dividend histories, and reasonable payout ratios have demonstrated their reliability.

Investors should build diversified income portfolios spanning multiple sectors and industries. Reinvesting dividends can compound returns over long time horizons. Adding new money to dividend growers on market dips further boosts income streams.

Prioritizing S&P 500 stocks balances growth and stability for long-term total returns. But plenty of smaller companies outside the index also offer excellent dividend growth potential at higher yields. Cast a wide net and conduct thorough due diligence to identify your best high-yield, dividend growth opportunities.

Other Key Factors When Analyzing Dividend Stocks

Management Track Record

Favor stocks with management teams that have proven their commitment to dividend growth over time. Beware new management teams without a track record.

Recession Performance

The safest dividend stocks perform consistently even during recessions when profits are under pressure. Defensive non-cyclical sectors tend to fare better.

Credit Ratings

Companies with investment-grade credit ratings typically maintain more conservative balance sheets supportive of sustaining dividends.

Cash Flow Stability

Analyze cash flow volatility over a full economic cycle. Steady cash flows support reliable dividends across business environments.

Industry Dynamics

Certain industries face disruption while others provide essential products immune to competition. Assess competitive advantages and long-term industry tailwinds.

Valuation

Use comparative valuation metrics like P/E, cash flow multiples, and dividend yield relative to history. Don’t overpay for yield alone.

Challenges and Risks

• Interest rate sensitivity – Rising rates decrease the relative appeal of dividends.
• Overvaluation – High demand can drive up valuations for dividend payers, increasing downside risks.
• Concentration risk – Portfolios concentrated in too few names or sectors increase vulnerability.
• Dividend cuts – Even consistent dividend growers can cut payouts if severely impacted by unexpected downturns. Diversification and due diligence reduce these risks.

To Recap

Dividend growth investing represents a proven strategy to generate strong risk-adjusted returns over time. Investing in high-quality companies with rising payouts can provide portfolio stability while bringing in a steady stream of growing income.

Focusing on S&P 500 dividend growers strikes an optimal balance between mature, blue-chip businesses and those still in their growth phases. Casting a wide net and utilizing screens based on dividend history, earnings growth, and payout ratios identifies the most promising opportunities.

Constructing a diversified portfolio of the highest-quality dividend growers at reasonable valuations sets investors up for sustainable long-term outperformance. Reinvesting dividends, adding new money consistently, and letting compounding work its magic will grow income substantially over decades.

Sticking to a buy-and-hold approach while utilizing options strategies to enhance income can maximize returns. Investors should continue holding through market volatility, knowing their dividends will keep rolling in regardless.

FAQs

What are the benefits of dividend growth stocks?

Dividend growth stocks provide rising income streams to supplement portfolio returns. Growing dividends hedge inflation and provide steady cash flow through market volatility.

How fast do dividend growth stocks raise their dividends?

The dividend growth rate varies, but S&P 500 companies have averaged about 6% annual dividend growth historically. Individual stocks can grow much faster depending on their earnings growth trajectory.

What dividend yield is considered high?

Anything above 4-5% is generally considered a high dividend yield versus the market average of around 1.5%. Yields above 10% warrant caution as they may imply dividends are at risk of being cut.

What payout ratio is too high?

Payout ratios above 80-90% imply dividends are consuming most earnings, leaving little cushion for downturns. The safest dividend stocks have payout ratios between 40-60%.

How many dividend growth stocks should I own?

Owning 15-20 dividend payers diversifies risk, while still allowing each stock to meaningfully contribute to overall income. Reinvesting dividends can accelerate portfolio growth.