Below-Average Yields, Above-Average Dividend Growth: Three Mega-Cap Winners

For long-term income investors, chasing high-yielding dividend stocks can be counterproductive. These businesses often have stagnant payouts and slow growth rates, ultimately sabotaging investor returns.

A more effective strategy is to focus on companies with below-average yields but above-average dividend growth potential. Three mega-cap businesses that fit this mold are Visa (NYSE:V), S&P Global (NYSE:SPGI), and Costco (NASDAQ:COST). Despite their relatively modest payouts, these companies have demonstrated a consistent track record of increasing dividends over time.

Visa's quarterly dividend has risen from 10 cents in late 2008 to 67 cents today, with an uninterrupted sequence of increases. The company's strong cash flow generation and high profit margins provide a solid foundation for continued growth. While litigation and regulation pose potential risks, Visa's long-term fundamentals remain robust.

S&P Global has also shown impressive dividend growth, with its regular quarterly payout increasing from 77 cents in 2021 to 97 cents today. The company's benchmark businesses, including Ratings, Indices, and Platts, account for nearly two-thirds of revenue and more than 80% of operating profits. With a forward P/E of 20, S&P Global's valuation is attractive compared to its historical highs.

Costco's dividend growth story is equally compelling. The company's regular quarterly payout has increased from 79 cents in 2021 to $1.47 today, with periodic specials adding to the overall return. Costco's membership program generates annuity-like recurring revenue, providing a stable foundation for continued growth.