VIG - The 3 Best Dividend Stocks to Buy Now 

2023-07-11 12:45:56 ET

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

If you’re looking for the best dividend stocks to buy now, the WisdomTree U.S. Quality Dividend Growth Fund (NASDAQ: DGRW ) is a good place to start . DRGW is one of the largest U.S.-listed dividend growth exchange-traded funds (ETFs) with $9.2 billion in net assets.

The ETF tracks the performance of the WisdomTree U.S. Quality Dividend Growth Index , a collection of 300 dividend-paying stocks with a record of increasing their dividends over time while generating healthy returns on equity and assets, with market capitalizations over $2 billion.

In 2022, the ETF had a total return of -6.34%, about one-third the loss of the SPDR S&P 500 ETF Trust (NYSEARCA: SPY ). So there’s no question that DGRW can deliver a combination of offense and defense. Dividend stocks, in general, possess this attribute.

When looking for the best dividend stocks to buy, I’m more interested in the dividend growth than the yield. That’s because growth in dividends is a by-product of earnings growth. The two usually go hand in hand. DGRW delivers these types of companies.

All three of my dividend stocks to buy now are held by DGRW. I’ve selected three that have grown their annual dividend by 8% over the past 12 months.

Deere & Co. (DE)

Deere & Co. (NYSE: DE ) is the 5oth-largest holding in DGRW with a 0.41% weighting.

The agricultural and construction equipment manufacturer last raised its quarterly dividend by 4.2% with the May 2023 payment. It also raised its payment by 6.2% in February. Year-to-date, it’s increased its dividend by 10.6%. The annualized dividend is $5 a share, yielding 1.2%.

As I said in the introduction, it’s more about growth than yield. As for its return on equity and return on assets, they are 9.81% and 43.34%, respectively, in the trailing 12 months ended April 30.

Bill Gates, through his foundation, owned 3.92 million shares of Deere stock as of March 31. Those shares are currently worth $1.6 billion. Including Gates’ investment company, Cascade Investment LLC , the billionaire owns nearly 8% of the company , making him the largest shareholder.

Barron’s discussed in June how Deere and other industrial companies will likely benefit from $1.2 trillion in spending for the Infrastructure Investment and Jobs Act and another $500 billion from the Inflation Reduction Act.

Deere plays in some very important sandboxes between the ongoing need for housing and food. It’s a big reason why analysts like its stock. Of the 26 that cover it, 19 rate it overweight or an outright buy with a $437 target price, about 8% higher than its current share price.

I’d expect these targets to rise over the remainder of 2023.

Elevance Health (ELV)

Elevance Health (NYSE: ELV ) is the 66th-largest holding in DGRW with a 0.33% weighting. It used to be known as Anthem until its rebranding in June 2022.

The health insurance provider to more than 48.1 million medical members through various health plans last raised its quarterly dividend by 15.6% with the March 2023 payment. It is the 12th consecutive year it’s raised its dividend. The annualized dividend is $5.92 a share. It yields 1.4%.

Elevance reported its Q1 2023 results in April. It got off to a strong start to the year with a 10.6% increase in revenue to $41.9 billion with an operating profit of 16.6% to $2.8 billion. Its pharmacy benefits manager, CarelonRX, had a 17.7% increase in revenue in the first quarter to $11.3 billion, accounting for 32.5% of its overall revenue, 230 basis points higher than a year earlier.

Analysts like its stock. Of the 24 covering it, 21 rate it overweight or an outright buy with a median target price of $564. That’s 31% higher than where it’s currently trading.

Trading at 0.65x sales, it’s cheaper than it’s been since 2016.

Targa Resources (TRGP)

Targa Resources (NYSE: TRGP ) is the 132nd-largest holding in DGRW with a 0.11% weighting. The midstream gatherer and processor of natural gas ( 70% in the Permian Basin ) is very popular with analysts. Of the 19 covering its stock, 17 rate it a buy. The two others give it an “overweight” rating.

Analysts expect earnings per share in 2023 of $5.23, jumping to $6.58 in 2024. TGRP trades at just 11.7x its 2024 EPS. Its forward price-to-earnings (P/E) hasn’t been this cheap since 2015 .

The company generates 85% of its revenue from fee-based contracts, providing stable earnings and cash flow. Since 2019, it’s grown its adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) by 150%.

In terms of rewarding shareholders, it increased dividends by 43% in 2023 while repurchasing its shares — it started a share repurchase program in October 2020 — at an average price of $39.33, half its current share price.

As noted in the first paragraph, Targa has a big presence in Texas’s Permian Basin with 36 plants and 6.9 billion cubic feet per day (Bcf/d), with plenty of growth in the years ahead. In 2022, Targa processed approximately 4.9 billion gallons of liquified petroleum gas ( LPG ) exported outside the U.S.

Investors should be aware that it finished the first quarter with $12.2 billion in debt. That’s a relatively high 70% of its market cap. However, it expects to generate $3.6 billion in EBITDA in 2023, providing plenty of cash flow to cover its interest expenses.

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 .

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