One of the best parts about investing is that stocks offer you a reasonable chance to maintain -- or even increase -- your purchasing power over time. Yet as 2022 has proven, stocks can go down as well as up. There is one reward from investing, however, that depends more on the strength of the business than the mood of the market. That reward is a dividend -- a cash payment many companies make to their shareholders.
Because dividends tend to get paid from a company's operating earnings, they can increase even if its stock price is falling. That can make it much easier to hold on while waiting for a recovery. When the increases keep up with inflation, an investor's purchasing power has a chance to do so as well.
With that in mind, the following three Motley Fool contributors shared companies that have shown an ability to increase their dividends fast enough to keep up with even today's inflation. They chose Home Depot (HD +2.42%), Texas Instruments (TXN +2.87%), and Sherwin-Williams (SHW +3.69%). Read on to find out why and determine for yourself if any of them deserve a spot in your portfolio.
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Home Depot offers investors sustainable dividend growth
Parkev Tatevosian (Home Depot): One of the side effects of the coronavirus pandemic has been an ugly bout of inflation. Investors have seen the purchasing power of their dollars decrease as the cost of goods has risen. Investing in dividend stocks that raise their payouts faster than the inflation rate is one way to protect said purchasing power.
NYSE: HD
Key Data Points
Speaking of which, Home Depot has done wonders for investors looking for dividends. The home improvement retailer has increased its dividend per share nearly sixfold, from $1.16 in 2013 to $6.60 in 2022. As alarming as the rate of inflation has been in the recent year or so, it is no match for Home Depot's rapid dividend growth.
Of course, Home Depot could not support this kind of boost without profits that back it up. Otherwise, the company would run out of its cash balance and exhaust its borrowing capacity. Home Depot's earnings per share have risen from $3 to $15.53 in the same time span mentioned above. For investors, that means Home Depot's dividend growth is not just robust, it's also sustainable.
Niche player, nice raiser
Eric Volkman (Texas Instruments): Texas Instruments is one sleeper stock that's a fine play on both its solid fundamentals and a relentlessly rising dividend. The company is a maker of analog chips, which may not be as cool and cutting-edge as the latest processor packed into your car or mining your cryptocurrency. They are, nevertheless, essential in many current and recent technologies.
NASDAQ: TXN
Key Data Points
Texas Instruments' long history and its position at the uncool end of the chip industry make it an extremely strong player in its niche -- particularly in a world continuing to get ever more automated. This helped push the company's revenue up by nearly 30% year over year in 2021 (to more than $18 billion), and its headline net income skyward at an almost 40% clip (to $7.7 billion).
Component shortages continue to hamper companies throughout the tech sector, but it seems someone forgot to tell Texas Instruments. Its second quarter, which occurred in the thick of that global headache, was still rife with double-digit growth. Revenue rose by 14%, while net profit headed north with a 19% improvement.
Highly profitable companies also tend to be good cash generators, and Texas Instruments is no exception.
Its free cash flow (FCF) tends to hover around 30% of revenue. That gives the company plenty of financial firepower to not only issue a quarterly dividend on the regular, but also to keep it continually on the rise, year after year. And the company is generous with those lifts more often than not: From 2017 to 2021, on an annual basis the dividend more than doubled. And recently, the company raised it by a sturdy 8%.
Automation is going to keep snowballing, if anything, and Texas Instruments will be right there to take full advantage. This stock is a fine inflation beater to help any investor through potentially challenging economic times.
The most fun way to watch paint dry
Chuck Saletta (Sherwin-Williams): Best known for its eponymous paint lines, Sherwin-Williams has increased its dividend annually for 43 years. That's an incredible track record for any company. When you recognize that it has done so while operating in a business line that depends on things like the health of the housing market, it becomes even more outstanding.
NYSE: SHW
Key Data Points
Not only has Sherwin-Williams consistently increased its dividend, but its 2022 increase was nearly 9.1%, which outpaces the recently reported 8.3% annualized inflation rate. It delivered that increase while still only paying out around 35% of its earnings, which means it still has room to continue its trend of increases if it chooses to do so.
There are never any guarantees when it comes to investing, but when a company has the ability to regularly reward investors like Sherwin-Williams has, it tells a story. The story it tells includes one of a commitment to that dividend, as well as a reasonable enough economic moat to enable such a payout to last.
In Sherwin-Williams' case, a big part of that moat comes from its commitment to quality. Its paints regularly show up on "best of" lists, which helps support generally premium price points. On top of that, Sherwin-Williams also runs its own retail locations, which means it can offer a full range of its own products and profit, regardless of which price point its customers pick.
That, plus the ability to mix paint colors at those stores, helps it adapt its offerings and product mix to changing customer demand. This enables it to more quickly adapt to economic circumstances than a business that has to produce its final products well in advance of demand. That flexibility certainly plays in to the company's long track record of rewarding its shareholders with those increasing payouts.
Get paid for your patience
It's never fun to watch your investing account balance fall. A dividend can help offset that pain by giving you cash to reinvest without forcing you to sell your existing holdings. When that dividend increases, it also helps you remember that there's a business behind that stock, and that business may still be performing well.
If this seems like a path that can help you get through even today's unpredictable market, then Home Depot, Texas Instruments, or Sherwin-Williams may very well be worth your consideration. Remember, though, that to receive their dividends, you need to own those stocks before their ex-dividend dates and hold on through at least that date. So get started now and make today the day you start your journey to attempt to build a rising investment income stream of your own.
