3 Top Dividend Growth Stocks to Buy Right Now

Dividend growth stocks can generate long-term wealth because of a compounding effect and price appreciation. As the weather starts warming, savvy investors should start to think about some of these top names that benefit from spring temperatures.

Three equities in particular stand out — they are all market leaders and have solid long-term growth prospects.

Consider diving into these dividend growth stocks now as the world heats up.

Coca-Cola (KO)

Coca-Cola (NYSE:KO) is a classic dividend growth stock for spring 2024. It is the largest non-alcoholic beverage company in the world, operating in over 200 countries.

It competes in every non-alcoholic beverage market segment with dozens of brands like Coke, Diet Coke, Sprite, Fanta, Dasani and Costa. Its recent market share was 46.3% in the United States, with five of the top 10 selling carbonated soft drinks. Total revenue was $45.75 billion in 2023.

As far as dividend companies go, Coca-Cola is a rock star. The firm is one of the longest running dividend stocks, and one of only 25 U.S. companies that have paid a dividend for 100-plus years. Additionally, it is a Dividend King with a 62-year streak of increases. It most recently raised the dividend by another 5.4% in February 2024.

The flat share price and growing dividend have caused the dividend yield to reach approximately 3.2%. The dividend usually grows in the low- to mid-single digits annually. It is backed by an acceptable payout ratio of 68%. Free cash flow of $9.75 billion exceeds the dividend distribution of $7.95 billion. It earns a B+ dividend quality grade, enhancing the dividend safety.

Despite rising revenue and earnings, Coca-Cola’s share price has remained relatively flat since about mid-2022. It trades at a price-to-earnings ratio of 21.5x, below the 5-year and 10-year ranges. However, consensus earnings are anticipated to rise in 2024 and 2025.

Consequently, historical undervaluation, dividend safety, a nice yield, and a long dividend history make this equity a buy.

Hormel Foods (HRL)

As the weather warms, Americans head outside to grill. Hormel Foods (NYSE:HRL) is well positioned to provide pork and turkey products for consumers. It owns brands like Hormel, Black Label, Jennie-O, Spam, Applegate, Sadler’s Smokehouse and Austin Blues. The firm is the market leader in many categories. Spam has a 50%-plus market share in shelf-stable meats, while Applegate and Jennie-O are numbers three and four in their segments.

Besides pork and turkey products, Hormel owns the Planters’ brand with a 17% market share in nuts, and Skippy, the No. 2 peanut butter in sales. Total revenue was $12.14 billion in the last 12 months.

Hormel is another popular dividend growth stock. It is a Dividend King with a 58-year streak of increases. The firm’s dividend yield reached roughly 3.85% as the share price declined. However, decent quarterly results and investor optimism caused the share price to rebound, and the forward yield is now 3.25%. The dividend is growing about 5% to 6% per annum. We do not expect that to change because of the 68% payout ratio.

The dividend safety is excellent, and the equity receives a B from Portfolio Insight for its dividend quality. It also has an A-/A1 upper-medium investment credit rating, offering more confidence about its safety. In addition, free cash flow of $968 million more than covers the dividend requirement of $601 million.

Hormel’s share price struggled because of poor results during and after the Covid-19 pandemic. In fact, the price reached about $30 per share, and simultaneously, the dividend yield soared to a decade high. Both have recovered, but Hormel’s stock is still undervalued based on historical metrics, changing hands at 21.4 times earnings. As a result, we view Hormel as a buy.

Constellation Brands (STZ)

Constellation Brands (NYSE:STZ) is probably less well-known than the other two companies. However, it is a giant in alcoholic beverages, especially after acquiring Modelo’s U.S. beer business with a perpetual license in 2013. Consequently, revenue, earnings, and free cash flow soared. Modelo Especial is now the No. 1 selling beer in America. Besides Modelo, Constellation owns or controls the rights to sell Corona, Pacifico, Kim Crawford, Meiomi, Robert Mondavi, The Prisoner and SVEDKA. Today, Constellation has nearly a $50 billion market capitalization, and revenue has reached $9.82 billion.

Constellation only started paying a dividend in 2015 and has increased it for nine years, placing it on the Dividend Challenger list. The forward dividend yield is 1.3%, and the dividend is growing by about 5% annually. However, dividend safety is exceptional, with a 33% payout ratio and 41% free cash flow coverage. The equity also has a B+ dividend quality grade, meaning it’s in the 80th percentile. We expect many more dividend increases because of the high dividend safety.

The stock is trading at a P/E ratio of about 20x, within its range over the past decade. Hence, it is not terribly undervalued, but investors should consider this equity due to its market leadership and dividend growth potential.

On the date of publication, Prakash Kolli held a LONG position in KO and HRL. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.