Stocks to buy

A portfolio should have dividends, growth, and penny stocks depending on the risk-taking ability. Within the dividend stock space, there can be potentially two types of stocks. First, blue-chip stocks pay steady dividends. Additionally, emerging blue-chip stocks that have the potential to deliver robust dividend growth. This column focuses on some of the best dividend growth stocks that can give investors high returns.

One of the key screening criteria is a strong balance sheet coupled with robust cash flows. Further, the focus is on companies likely to witness healthy revenue growth. Even with stable margins, cash flows will swell, boosting dividends.

I also believe these top dividend growth stocks to buy now are attractively valued. Capital gains can best index returns consistently.

Let’s discuss the reasons to be bullish on these best dividend growth stocks.

Apple (AAPL)

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Apple’s (NASDAQ:AAPL) stock price trend for year-to-date 2023 indicates that something big might be on the cards. During this period, AAPL stock has surged by 40%. A dividend yield of 0.55% does not look attractive. However, I expect robust dividend growth in the coming years.

To put things into perspective, Apple reported $166.3 billion in cash and marketable securities as of April 2023. Further, for the first half of the financial year, the company reported operating cash flow of $62.6 billion. This implies an annualized OCF of $125 billion. Therefore, there is ample flexibility for dividend growth, aggressive share repurchases, and investment in innovation.

In terms of segments, iPhone remains the cash cow. However, I am bullish on the long-term outlook for the services and wearable segment. The company is also focusing on some big emerging markets like India. In the next five to ten years, emerging markets will likely be key growth drivers.

Albemarle Corporation (ALB)

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Albemarle Corporation (NYSE:ALB) is among the best dividend growth stocks to buy. Currently, ALB stock offers a dividend yield of 0.78%. I, however, expect strong dividend growth on the back of aggressive capital investments.

With lithium price correcting in the recent past, ALB stock also trades at a valuation gap. At a forward price-earnings ratio of 9, the stock is poised to double in the next 24 to 36 months. With strong demand from the EV sector, lithium prices will likely remain in an uptrend.

In terms of expansion, Albemarle reported a lithium conversion capacity of 85ktpa in 2019. At the end of 2022, the company boosted its capacity to 200ktpa. The target is to achieve a capacity of 55ktpa by 2027.

Capacity expansion coupled with a higher realized price would imply robust cash flows. This will translate into sustained dividend growth. The company expects an operating cash flow of over $3 billion for the current year.

Amdocs (DOX)

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Amdocs (NASDAQ:DOX) is another name among the best dividend growth stocks for the portfolio. The hidden-gem stock has a current dividend yield of 1.8%. Given the visibility for growth and free cash flow upside, I expect healthy dividend growth.

As an overview, Amdocs provides software and services to communications and media companies. Last year, the company reported $4.58 billion in revenue with 75% recurring income. Further, the free cash flow for the year was $665 million. With steady revenue growth visibility, the FCF upside is likely to sustain. This will provide ample headroom for dividend growth.

Regarding specific business growth triggers, wider adoption of 5G will likely benefit the company’s order inflow. Amdocs has also invested over $1 billion in its next-generation cloud technology. With a presence in 90 countries, the addressable market is significant. By 2025, the company believes the serviceable addressable market will be $57 billion.

Overall, DOX stock has been flying under the radar. The stock upside will be meaningful once this potential cash flow machine is in the limelight.

On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Faisal Humayun is a senior research analyst with 12 years of industry experience in the field of credit research, equity research and financial modeling. Faisal has authored over 1,500 stock specific articles with focus on the technology, energy and commodities sector.

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