Dividend growth investors consider multiple things when buying a stock, such as dividend yields and P/E ratios. These investors should also incorporate a company’s future growth potential into their analysis. Investors looking for better returns could consider stocks that might have lower yields today, but stronger long-term growth prospects.

The Dividend Challengers are a group of companies with over 5 years of dividend growth. These 3 Dividend Challengers pay dividends and have future growth potential, meaning they could generate high total returns over the long-term.

Yum Brands (YUM)

Yum Brands is a fast-food giant that owns the KFC, Pizza Hut, Taco Bell, and The Habit Restaurants chains. It is present in more than 155 countries and has more than 54,000 restaurants, 60% of which are located abroad. KFC generates about half of the total revenue and operating profit of the company. Yum has increased its dividend for seven consecutive years.

In early February, Yum Brands reported (2/7/23) results for the fourth quarter of 2023. It grew its sales 5% over the prior year’s quarter thanks to 1% same-store sales growth and 6% growth of store count. KFC, Taco Bell, and Pizza Hut grew their sales 7%, 6% and 1%, respectively. Digital sales grew 22% and exceeded 45% of total sales. Yum Brands stated that it will keep opening new stores at a fast pace this year and expects 2024 to be another year of strong growth.

 Yum Brands has greatly rewarded shareholders with its refranchising and aggressive share repurchases. The company expects to grow its store count by 4%-5% per year in the upcoming years. During the last five years, Yum Brands has grown its earnings-per-share at approximately 9% per year.

The strength of Yum’s brands and their appeal to consumers constitute a significant competitive advantage. Thanks to its established brands, the company enjoys reliable free cash flows. With a dividend payout ratio under 50%, the dividend is safe with room for growth. YUM currently yields 2%.

FMC Corporation (FMC)

FMC Corporation is an agricultural sciences company that provides crop protection, plant health, and professional pest and turf management products. Through acquisitions, FMC is now one of the five largest patented crop chemical companies. The company markets its products through its own sales organization and through alliance partners, independent distributors, and sales representatives. It operates in North America, Latin America, Europe, the Middle East, Africa, and Asia.

On February 6th, 2024, FMC released fourth quarter and full year 2023 results for the period ending December 31st, 2023. For the quarter, the company reported revenue of $1.15 billion, down 29% versus the fourth quarter of 2022, and adjusted earnings per diluted share of $1.07.

We expect the company to grow its earnings-per-share by 6% per year on average over the next five years. The company remains well positioned in its markets and was able to increase prices in all regions. We expect rising demand from agricultural markets that will drive strong sales of fertilizer in the years ahead. Growth from emerging geographies should also be particularly healthy.

During the past five years, the company’s dividend payout ratio has averaged around 23%. With the current payout ratio of 60%, FMC’s dividend payments are covered by earnings. Given the expected earnings growth, there is still room for the dividend to continue to grow moving forward while maintaining a payout ratio of around 60%. FMC stock currently yields 4.5%.

Dollar General (DG)

Dollar General Corporation opened its first dollar store in 1955. The company went public in 1968 and was merged into a privately held company in 2007. The company conducted an initial public offering in November 2009. Today, it is the leading U.S. “dollar store”. About 80% of its items are offered at $5 or less. Dollar General sells a wide variety of merchandise in four categories: consumables, seasonal, home products, and apparel.

Dollar General reported Q3 FY2023 year results on December 7th, 2023. The company is experiencing weakness and 2023 will be challenging. But Dollar General is still growing albeit more slowly because of new store openings and higher customer traffic, offset by store closures and lower transaction amounts. But high inflation is affecting input costs. Net sales increased 2.4% as organic growth fell (-1.3%) because consumers are spending less, offset by new store openings.

The company started the new pOpshelf store concept. It is also expanding internationally for the first time in Mexico. Additionally, Dollar General is opening new stores in a larger format, resulting in higher sales.

Dollar General’s main competitive advantage is its industry positioning, small store formats and location in small towns. Dollar General benefits from lower distribution costs due to the small store format and lower number of stocked items. Furthermore, the lower average transaction cost limits competition from online retailers.

DG has increased its dividend for 9 years and the stock yields 1.8%.

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Bob Ciura has worked at Sure Dividend since October 2016. He oversees all content for Sure Dividend and its partner sites. Bob received a Bachelor’s degree in Finance from DePaul University, and an MBA with a concentration in Investments from the University of Notre Dame.