Dividends have been a major source of long-term stock market returns. From 1930 to 2017, dividends accounted for 42% of the S&P 500's total returns.
Among dividend stocks, dividend growth stocks have outperformed others. A company with the ability to increase its dividend payouts over time is likely operating the type of growing, high-quality business that long-term investors are seeking to buy and hold.
During periods of high inflation, dividend stocks that increase their payouts the most tend to outperform the broader market, making dividend growth particularly relevant in today's climate.
Here are seven stocks Bank of America analysts recommend that have five-year dividend growth rates of at least 15%.
JPMorgan Chase & Co (NYSE:JPM)
JPMorgan and other big bank stocks have taken a hit in recent weeks, as the recent market volatility may pressure the U.S. Federal Reserve taking a more cautious approach to raising interest rates.
Analyst Ebrahim Poonawala says JPMorgan is "best in breed" when it comes to earnings diversification and business execution. The bank's commitment to investing in innovation and technology differentiates it from peers, the analyst said.
JPMorgan has a 2.8% dividend yield and a five-year dividend growth rate of 15.1%.
Bank of America has a Buy rating and $200 price target for JPM stock.
Home Depot Inc (NYSE:HD)
Home improvement retailer Home Depot was one of the stars of the retail sector during the COVID-19 pandemic. Historically low interest rates coupled with lockdowns were a winning combination for a booming housing market and a surge in home improvement project spending. Analyst Elizabeth Suzuki says inflation is a tailwind for Home Depot's revenue growth, and she is confident the come improvement market will continue to grow off elevated levels in the medium-term.
Home Depot has a 2.4% dividend yield and a five-year dividend growth rate of 19%.
Bank of America has a Buy rating and $440 price target for HD stock.
Broadcom Inc (NASDAQ:AVGO)
Analyst Vivek Arya says there are several reasons for investors to buy shares of chipmaker Broadcom. Enterprise spending is bouncing back in 2021, driving greater than 50% growth in Broadcom enterprise server sales in the fiscal first quarter. Broadcom is already fully booked for 2022 and has orders spilling over into 2023. Finally, in a volatile semiconductor environment, Arya says Broadcom's software business provides defensive protection for investors.
Broadcom has a 2.8% dividend yield and a five-year dividend growth rate of 49.3%.
Bank of America has a Buy rating and $750 price target for AVGO stock.
Morgan Stanley (NYSE:MS)
Like JPMorgan and other financial stocks, investment bank Morgan Stanley has taken a big hit in the last month. Poonawala says dividend investors shouldn't be scared to scoop up shares of Morgan Stanley on the dip. He says the bank has a resilient business model and top-rate execution. In addition, Poonawala says he still expects banks with sensitivity to the yield curve will outperform in the next year. Morgan Stanley has a 3% dividend yield and a five-year dividend growth rate of 24.5%.
Bank of America has a Buy rating and $125 price target for MS stock.
Texas Instruments Incorporated (NASDAQ:TXN)
Texas Instruments is one of the world's largest semiconductor manufacturers. Arya says Texas Instruments recently issued higher-than-expected capital expenditures guidance, but those investments could ultimately result in long-term market share gains.
The company reaffirmed its commitment to returning all excess free cash flow to shareholders, and Arya says Texas Instruments has a long history of dividend and buyback growth. Arya says the stock deserves to trade at a valuation premium to premium diversified industrials.
Texas Instruments has a 2.7% dividend yield and a five-year dividend growth rate of 20.7%.
Bank of America has a Buy rating and $200 price target for TXN stock.
Citigroup Inc (NYSE:C)
Citigroup is another volatile big bank stock that Poonawala says is an undervalued dividend growth play. In addition, Citigroup has a potential near-term catalyst coming in its March 2 strategic update event. Poonawala says the combination of low investor expectations, a stock priced below its tangible book value per share and a new CEO that understands aggressive action is needed to correct nearly two decades of underperformance make Citigroup a risk worth taking for long-term investors. Citigroup has a 3.4% dividend yield and a five-year dividend growth rate of 37.1%.
Bank of America has a Buy rating and $100 price target for C stock.
Starbucks Corporation (NASDAQ:SBUX)
Starbucks is the world's leading high-quality coffee retailer. Economic weakness in China has been a major overhang for Starbucks, but analyst Sara Senatore says the China market is still a major long-term growth source for Starbucks. Senatore says the correlation between Starbucks' U.S. same-store sales growth and its stock's valuation has turned negative since the COVID-19 pandemic began, suggesting investors don't understand the transitory nature of the company's recent international weakness, particularly in China.
Starbucks has a 2.1% dividend yield and a five-year dividend growth rate of 17.6%.
Bank of America has a Buy rating and $135 price target for SBUX stock.
