Dividend growth investors typically focus on stocks with the longest streaks of annual dividend increases, such as the Dividend Aristocrats or Dividend Kings. Investors looking for better returns could also consider the Dividend Challengers, which may have stronger growth potential.

The Dividend Challengers are a group of companies with 5 to 9 years of dividend growth. These 3 Dividend Challengers have the potential to increase dividends every year, and have solid yields above 3%.

Baxter International (BAX)

Baxter International develops and sells a variety of healthcare products, including biological products, medical devices, and connected care services devices used to monitor patients. Its products are used in hospitals, kidney dialysis centers, nursing homes, doctors’ offices, and patients at home under physician supervision.

On July 27th, 2023, Baxter International reported Q2 2023 results for the period ending June 30th, 2023. For the quarter, revenue grew 3.3% to $3.71 billion, but this was $80 million below estimates. Adjusted earnings-per-share of $0.55 compared unfavorably to $0.87 in the prior year and was $0.06 less than expected.

Baxter has seen growth across its product lines and across its geographic segments over the past 5 years. We maintain our five-year projected earnings-per-share growth rate of 10% due to the quality of the company as well as the low base of earnings that 2023 is expected to see.

Over the past 5 years, dividends have grown at 10.6% annually. Over the next 5 years, we forecast that dividends will grow at about 10% annually, in line with earnings-per-share growth. BAX stock currently yields 3%.

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 August 2nd , 2023, FMC released its second quarter results for the period ending June 30th, 2023. For the quarter, the company reported revenue of $1.01 billion, down 30% versus the second quarter of 2022, and adjusted earnings per diluted share of $0.24, down 77% versus the same quarter previous year.

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 31%, FMC’s dividend payments are well 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 35%. FMC stock currently yields 3.2%.

H&R Block (HRB)

H&R Block, Inc. is a global consumer tax services provider. It offers comprehensive tax return preparation through approximately 12,000 company owned and franchised H&R Block locations around the world. H&R Block also offers tax software. The company prepares over 20 million tax returns annually.

On August 15th, 2023, H&R Block announced financial results for the fiscal 2023 fourth quarter. In Q4, the company reported non-GAAP EPS of $2.05, surpassing expectations by $0.17. However, the revenue of $1.03 billion, which is down 1.9% compared to the previous year, fell short by $10 million.

The Board of Directors has decided to increase the quarterly dividend by 10%, marking the 7^th consecutive yearly increase.

The Wave Financial acquisition added a boost to HRB’s otherwise murky growth outlook. Wave Financial will give the company more opportunities to grow in the small business sector, an area less likely to be impacted by a simplified personal income tax code. The company is currently generating solid growth while also paying out a sizable dividend and buying back shares.

H&R Block scores fairly well when it comes to safety and quality metrics. The company has a large amount of debt, but also generates strong interest coverage. It also has a payout ratio of just 30%, which indicates the dividend is secure. H&R Block has paid quarterly dividends consecutively since the company went public in 1962. HRB stock currently yields 3.1%.
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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.