3 High-Quality Dividend Growers to Buy on a Dip

Dividend growth stocks are attractive for many reasons, including payouts, increased return on capital, and insulation from market volatility, but there’s a problem. These buy-and-hold stocks span all sectors but often have above-average valuations and below-average yields, so buying them when the price is down is important.

Old transportation lines in the Dominion NASDAQ:ODFL, Avery Dennison Corporation NYSE:AVY AND Lennox International NYSE: LII there are three such names on the verge of offering buying opportunities. All delivered solid fourth-quarter results and provided a positive outlook, but none catalyzed a rally. Analysts are raising their targets, so biases and risks are on the upside, but stock prices could fall before they rise. Interested investors should be ready to buy when prices drop.

Old Dominion Freight Lines increases dividend by 30%

Old Dominion Freight Lines is not a Dividend King or even an aristocrat, but it has one of the strongest prospects for distribution growth in the market. The company’s shares pay around 0.53% yield due to the high 30X price multiple, but are incredibly safe at just 16% of earnings. The company’s growth and earnings quality delivered a 30% increase this quarter, extending the trend of high double-digit increases for another year. Increases may slow in the coming years, but there won’t be a significant need for them anytime soon. This year’s consensus forecast for earnings growth is 15% and will accelerate to 16% in F2025.

Analysts rate ODFL stock as Hold, but sentiment and price target are solidified. Sentiment began to strengthen last year, moving from Hold to Reduce, and Hold has become stronger with an early January upgrade to positive from Neutral to Susquehanna. The price target has been trending high for months and is up 35% from last year. The consensus assumes a fair value close to the current price movement, but the latest targets are well above it. The high end of the range assumes a 20% upside for this stock.

Avery Dennison has a higher yield, better value, and equal growth prospects

Avery Dennison Corporation compares favorably to Old Dominion Freight Lines on dividends, health, costs and outlook. The stock trades at a more reasonable 21x yield, pays a 1.6% yield, and grows the distribution at a double-digit pace. The pace of increase is slower, about 10% in recent years, but could accelerate this year and next. Growth prospects are solid, including an 18% gain this year and a 15% increase next. Growth is expected to accelerate this year and then slow next year, but next year’s numbers are likely conservative.

Analysts favor Avery Dennison, rating it a Moderate Buy, and see a 10% upside to the consensus midpoint. Fourth-quarter results prompted a revision: a reiterated overweight by JPMorgan Chase & Company and an increase in its price target. JPMorgan raised its target to match the consensus of $218; the high price target of $249 was set in January by Truist Financial Corp. New York Stock Exchange: TFC. This implies a 25% upside for this market.

Lennox International shares are poised to improve their value and return

Lennox International’s price action suggests a solid correction is brewing. The stock hit a high and formed a reversal tower that is now setting a new low. However, a move lower would improve the value and return of this quality distribution growth play. The return is average for this group and lower than the overall market average, but incredibly safe with a long road of increases ahead. The yield is below 25% of earnings estimates, and Lennox has outperformed consensus estimates throughout the year. Earnings growth is expected to hold steady in the low-double digits this year and support distribution CAGR of 12%.

Analyst activity is mixed following Q4 results, but bullish overall. The three revisions tracked by Marketbeat include a downgrade with price target reduction, a price target increase, and a buy initiated with a price target well above consensus. The consensus assumes a 5% upside for the market, and the high end of the range adds 23%.

Before you consider Old Dominion Freight Line, you’ll want to hear this.

MarketBeat tracks Wall Street’s highest-rated and best-performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market takes hold… and Old Dominion Freight Line wasn’t on the list.

While Old Dominion Freight Line currently has a “Moderate Buy” rating among analysts, top-rated analysts believe these five stocks are better buys.

View the five stocks here