Jefferies said investors looking for income can reap strong returns by turning to dividend growth stocks. Desh Peramunetilleke, the firm’s global head of quantitative strategy, said macro indicators such as lower inflation expectations, slower economic growth and slower commodity prices suggest investors will turn to dividend growth companies. He’s also bullish on high-quality income stocks in this environment. “U.S. dividend growth is widely expected to accelerate from 3.9% in 2023 to 6.2% in 2024, with a positive revision,” Peramunetilleke wrote in a note on Wednesday. “Most sectors except energy and autos are expected to Increased dividends, led by media and semis.” He noted that share buybacks also declined, improving the company’s free cash flow coverage. “As earnings growth returns, the U.S. can grow dividends again without impacting (free cash flow) coverage,” Peramunetilleke said. Jefferies defines dividend growers as those from 2019 to 2023 and expected in 2024 and Companies with a compound annual growth rate of dividends per share exceeding 5% in 2025. Additionally, they have a proven track record of growing dividends per share above 5% in at least four out of five years. Over the past few years, dividend cuts have never exceeded 5%. Finally, they have positive free cash flow conversion and a Dividend Sustainability Star Rating of three or above, based on the trailing five-year average. The company screens for companies with market capitalizations of $5 billion or more and dividend yields greater than 1.5%. Here are the 10 names that made the list. JPMorgan Chase, with a 12-month forward dividend yield of 2.3%, is the largest company on the list. In October, the bank raised its dividend to $1.05 per share from $1.00. Still, the bank noted in January that its fourth-quarter profit fell after taking a $2.9 billion charge related to the regional banking crisis. The stock has gained nearly 13% so far this year. AbbVie also makes the list with a forward 12-month dividend of 3.5%. Shares are up more than 15% this year after falling 6.6% in 2023. The biotech company has been facing declining sales for its autoimmune drug Humina, which lost exclusivity last year. However, the company has two newer immunology drugs, Skyrizi and Rinvoq, that it hopes will help offset these losses. AbbVie also recently completed its $10 billion acquisition of cancer drug maker ImmunoGen. In December, the company announced it would acquire neuroscience drug maker Cerevel Therapeutics for about $8.7 billion. In addition, the company will appoint a new chief executive. Longtime executive Robert Michael will become the company’s new CEO effective July 1. McDonald’s, which has a forward 12-month dividend of 2.4%, also made a cut. The fast-food giant reported fourth-quarter profit in February that beat expectations. However, its revenue fell short of expectations due to a boycott in the Middle East after its Israeli licensee offered discounts to soldiers. The stock is down 6% year to date.
