3 Dividend Growth Stocks for Long-Term Income

Dividend stocks are often classified by the size of their yields. After all, most investors looking for income will naturally focus on the highest-yielding stocks. But income investors should not immediately dismiss stocks with lower dividend yields. In many cases, lower-yielding stocks have the ability to raise their dividends at a higher growth rate, leading to more income over time than stocks with higher starting yields.

We believe the following three blue chip stocks have the ability to raise their dividends at a high level each year, while they also have solid yields right now.

Kroger Co. 

Kroger (KR) is one of the largest retailers in the U.S. The company has nearly 2,800 retail stores under two dozen banners, along with fuel centers, pharmacies and jewelry stores in 35 states.

On June 16th, Kroger reported first quarter results for the period ending May 21st, 2022. (Kroger’s fiscal year ends the Saturday closest to January 31st.) For the quarter, Kroger reported $44.6 billion in sales, up 8% compared to 2021. Excluding fuel, sales increased 3.8% compared to the year ago period. Adjusted earnings-per-share equaled $1.45 compared to $1.19 in 1Q21. Kroger repurchased $665 million of shares during the first quarter, and $301 million remains on their repurchase authorization.

Kroger also raised fiscal 2022 guidance. The company expects identical sales growth without fuel to be in the range of 2.5% to 3.5% and adjusted earnings-per-share of $3.85 to $3.95. The company reaffirms its expectations to return 8% to 11% to shareholders over time.

The Covid-19 pandemic, which has plagued many businesses, has been a tailwind for groceries and Kroger in particular. Aside from the pandemic, Kroger does have some other growth levers available. For instance, Kroger can continue to improve its margins via its “Restock Kroger” plan. Moreover, the company has reduced its share count significantly over the last decade and digital sales continue to be strong. Kroger expects to continue building on the momentum generated in 2020 and 2021, as they optimize technology and innovation in the quest to build competitive advantages.

Kroger has been prudent about its dividend, with a payout ratio sticking around the 20% to 30% range. The larger capital return focus has been, and likely will continue to be, on share repurchases. Still, a low payout ratio leaves plenty of room for high dividend growth, such as the recent 24% dividend increase in June 2020. Shares currently yield 1.8%.


Gorman-Rupp (GRC) began manufacturing pumps and pumping systems back in 1933. Since that time, it has grown into an industry leader with annual sales of about $512 million. Today, Gorman-Rupp is a focused, niche manufacturer of critical systems that many industrial clients rely upon for their own success. Gorman-Rupp generates about one-third of its total revenue from outside of the U.S. The company also has one of the most impressive dividend increase streaks in the market, which currently stands at 49 years.

Gorman-Rupp reported second quarter earnings on July 29th, 2022. Revenue soared 28% higher year-over-year to $119 million, beating estimates by $14 million. Adjusted earnings-per-share came to 27 cents. Net sales for second quarter were up from $93 million, with domestic sales rising 32%, and international sales rising 18%. Excluding the acquisition, sales in water markets were up 17%, while non-water market sales rose 6.2%. Most of the organic gain in sales came from municipal and industrial customers.

Gross profit was $28.2 million, or 23.7% of sales. These compared to $24.7 million and 26.5%, respectively, a year ago. The 280bps decline was due to a 500bps increase in the cost of material, including a 290bps unfavorable impact from inventory adjustments, as well as a further 120bps decline related to Fill-Rite inventory. These were partially offset by a 220bps improvement from labor and overhead leverage due to higher sales volumes.

As noted, Gorman-Rupp has increased its dividend for 49 consecutive years. Gorman-Rupp’s payout ratio is right at half of earnings and should remain there for the foreseeable future as the company continues to grow earnings over time. The company’s competitive advantage is in its many decades of experience in providing innovative solutions for niche, but critical, engineering problems facing its customers. Shares currently yield 2.5%.

Robert Half International 

Robert Half International (RHI) provides staffing and risk consulting services for companies around the world. The business has three segments: Temporary and Consultant Staffing, Permanent Placement Staffing, and Risk Consulting and Internal Audit Services. These segments accounted for 62.5%, 8.8%, and 28.7% of sales, respectively. Temporary and Consultant Staffing makes up most sales and includes contributions from different sub-segments including Accountemps, which offers accounting help for companies, Office Team, which provides office workers for companies, Robert Half Technology, which helps companies find IT professionals, and Robert Half Management Resources, which helps businesses find senior-level professionals.

The staffing industry is benefiting from the current “Great Resignation”, where employees are quitting their jobs at record rates. More people are looking to find work than before, and more employers are looking for new hires than before. On July 21st, 2022, Robert Half International reported Q2 2022 results for the period ending June 30th, 2022. The business reported earnings-per-share of $1.60, up 20.3% from the year-ago period. Revenue increased 17.7% year-over-year to $1.86 billion, but revenue missed expectations by $40 million.

Growth was led by the Total Contract Talent Solutions segment, which grew 19.2% year-over-year to $1.17 billion. In the Total Contract Talent Solutions business, the Finance and Accounting services led the segment in revenue growth, gaining 22.1% year-over-year to reach over $810 million in revenue for the quarter. Additionally, Protiviti, one of Robert Half’s subsidiaries, generated $497.0 million in revenue for the quarter, up 8.4% year-over-year.

The company has increased its dividend for 18 consecutive years. Over the past five years, dividend payments have grown at 12.4% annually. Shares currently yield 2.2%. With a 2022 dividend payout ratio expected to be under 30%, the company has sufficient room for strong dividend growth over the next several years.

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