2 No Hassle Dividend Growth Stocks to Buy Right Now

Dividend-paying stocks have been the dominant performers in the US market since 1900. Their strength lies in compounding, which can substantially increase returns over time.

Companies that consistently raise their dividends frequently outperform S&P 500 for long periods. These dividend producers often feature solid fundamentals, proven business models and management teams focused on shareholder returns.

Two critical parameters help identify promising dividend growth stocks: payout ratio and dividend growth rate. A sustainable payout ratio, ideally below 75%, suggests that the company can maintain its dividend even if earnings fall. A high dividend growth rate usually indicates a quality company capable of weathering economic downturns and market volatility.

Let’s examine two pharmaceutical giants that fit this profile: Novo Nordisk (NYSE: NVO) and Eli Lilly (NYSE: LLY).

Novo Nordisk: Dominating diabetes and obesity treatment

Novo Nordisk has built an eight-decade legacy in diabetes care. The company has 34 percent of the more than $50 billion diabetes treatment market and about half of the more than $15 billion insulin market. Over the past 36 months, Novo Nordisk shares are up 137%, significantly outperforming the S&P 500’s 31.8% gain over the same period.

The company’s dividend growth story is compelling. Novo Nordisk has a five-year annual dividend growth rate of 29% and a conservative payout ratio of 47%. This combination indicates substantial room for future dividend increases. The current dividend yield of 1.23% is above average for an elite dividend growth stock, enhancing its appeal to income-focused investors.

Novo Nordisk’s growth trajectory is mainly fueled by GLP-1 therapies, notably Ozempic for diabetes and Wegovy for obesity. These innovative treatments are expected to contribute significantly to the company’s estimated 2025 growth of 19.5%.

From a valuation perspective, Novo Nordisk shares trade at 24.7 times estimated 2026 earnings. This valuation represents a modest premium compared to both its big pharma peers and the S&P 500 benchmark, indicating the market’s optimism about the company’s growth potential.

However, this premium valuation also presents a key risk factor for investors to consider. During a broad market decline, stocks holding valuation premiums often face increased selling pressure and may experience steeper declines from their current levels.

Eli Lilly: Fueling Growth Through Innovation

Eli Lilly stands out for its innovative culture and substantial financial commitment to the development of next-generation medicines. The stock is up 292% over the past 36 months, outperforming both Novo Nordisk and the broader market (represented by the S&P 500). Lilly’s dividend growth story is also compelling, with a five-year dividend growth rate of 15.3% and a payout ratio of 59.8%.

The story continues

A strong pipeline and recently launched blockbuster drugs underpin Lilly’s growth potential. The company’s cardiometabolic portfolio, including Mounjaro for diabetes and Zepbound for obesity, establishes Lilly as a strong contender in the expanding GLP-1 market. Wall Street analysts estimate Lilly’s top-line growth in 2025 at 26%, underscoring the company’s strong growth trajectory.

Shares of Eli Lilly currently trade at 28.9 times estimated 2026 earnings, reflecting the market’s enthusiasm for the company’s innovative pipeline and growth prospects. While the current dividend yield of 0.57% might seem low, Lilly’s strong dividend growth rate and reasonable payout ratio suggest room for significant upside in the coming years.

Two dividend growth stocks built for long-term success

Novo Nordisk and Eli Lilly present compelling investment opportunities for dividend growth investors. These pharmaceutical giants are well positioned to capitalize on the growing demand for diabetes and obesity treatments. Their strong financial positions, innovative pipelines and commitment to returning shareholder value make them attractive long-term holdings for investors looking for both income and growth potential.

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George Budwell has no position in any of the shares mentioned. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.

2 No Problem Dividend Growth Stocks to Buy Right Now was originally published by The Motley Fool