2 Top Dividend Growth Stocks With Payouts Below 50%

While growth stocks have been in the spotlight since the 2008 financial crisis, dividend-paying stocks have quietly dominated U.S. stock returns since 1900. The secret weapon? Composition.

Companies that consistently increase dividends, known as “dividend producers,” often outperform the benchmark S&P 500 over periods of five to 10 years. These stocks typically feature strong fundamentals, proven business models and management teams focused on shareholder returns. Investors who reinvest these growing dividends take advantage of the power of capitalization, potentially amplifying their long-term gains.

Two critical metrics help identify winning dividend growth stocks: payout ratio and dividend growth rate. A sustainable payout ratio (ideally below 75%) helps ensure that the company can maintain its dividend even if earnings fall. Meanwhile, a high dividend growth rate usually indicates a quality company capable of weathering economic storms and market volatility.

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With this framework in mind, let’s examine two top dividend growth stocks that meet these crucial criteria, making them worthy candidates for a long-term portfolio.

General Dynamics: A dividend powerhouse in the defense sector

General dynamics (G.D 0.70%)founded in 1899, has established itself as a leading force in the aerospace and defense industry throughout its 125-year history. The company’s diverse portfolio includes Gulfstream business jets, naval vessels, combat systems and advanced technologies.

General Dynamics stock stands out as a top pick because of its robust dividend profile. It currently yields a healthy 1.86%, boasts a five-year annualized growth rate of around 5%, and maintains a fairly conservative payout ratio of 42.7%.

The company also offers long-term visibility into its earnings power thanks to strong demand for Gulfstream jets and a substantial backlog in its marine division. However, as a defense contractor, General Dynamics’ revenue is highly dependent on government defense spending, which can fluctuate based on political priorities.

Overall, General Dynamics presents a compelling option for investors seeking long-term growth and sustainable dividend payments. Its diversified business model and status as a major US defense contractor make it a strong dividend growth play.

GE Aerospace: Driving Dividend Growth

GE Aerospace (GE 0.68%) emerged as a stand-alone company following the spin-off GE Vernova at the beginning of this year. The company, which has retained General Electric’s listing on the New York Stock Exchange, is a longtime leader in the aircraft engine industry, operating about three flights out of four commercial airlines worldwide.

GE Aerospace’s substantial 250% dividend increase following the spin-off, combined with its established market position and strong brand recognition, make it a particularly interesting dividend stock. The company currently yields a modest 0.60% with an extremely conservative payout ratio of 14%, suggesting ample room for future increases in its quarterly cash distribution.

GE Aerospace’s business model combines new engine sales with a lucrative aftermarket service segment. The parts and services division accounts for about three-quarters of its commercial engine revenue, providing a steady stream of revenue over the long life cycle of its products.

GE Aerospace’s long-term earnings visibility is supported by strong demand for its engines and a substantial backlog in its aviation division. However, like many aerospace companies, its earnings are tied to the cyclical nature of the aviation industry, which can affect short-term performance at times.

GE Aerospace offers a compelling combination of industry leadership and dividend growth potential. Its recent dividend growth, low payout ratio and strong market position make it an attractive option for investors optimistic about the aerospace industry’s long-term outlook and those looking for significant dividend growth potential.

Stimulating portfolio growth

Both General Dynamics and GE Aerospace demonstrate the key qualities of great dividend growth stocks: strong market positions, sustainable payout ratios and a proven commitment to increasing shareholder returns. While each stock comes with its own set of risks and considerations, both stocks offer investors the opportunity to benefit from the power of compounding through dividend reinvestment and regular quarterly distribution increases.