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2 Dividend Growth Stocks to Buy Now: One Raised Its Payout 16%, the Other 71%
Key Points
A large dividend increase can indicate that a company has even more runway to boost its dividend over time.
Highly profitable financial companies are often a good area to look for compelling dividends.
Buying stocks of companies that can reliably sustain their dividends each year is a great way to generate consistent passive income. But it's even better if you can find companies that have the financial runway to grow their dividends.
Being able to increase the dividend every year and build a consistent track record is what gets dividend investors to take notice. Here are two dividend growth stocks to buy now: One raised its payout by 16% and the other by 71%.
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1. Visa: 16% increase
On Oct. 27, Visa's (NYSE: V) board of directors authorized the company to raise its quarterly cash dividend to $0.78 per share, an increase of 16%. Annualized, Visa would have a dividend yield of 0.76%, which admittedly is not very high.
But the good news about Visa's dividend is that there is plenty of room to grow it. In the third quarter of the year, Visa generated $3.19 in diluted earnings per share, meaning the quarterly payout ratio, even with the new dividend, is roughly 24%.
Furthermore, in Visa's 2026 fiscal year (ending Sept. 30), the company generated about $22 billion of free cash flow (operating cash flow minus PP&E), while only paying dividends of roughly $5.1 billion. Visa also repurchased over $20 billion of stock during the fiscal year, so it's rewarding investors in other ways.
But that leaves plenty of room to raise its dividend if management so chooses.
Visa has also proven to be an extremely durable company to own for decades. It runs the world's largest payments network, with a scale that will be difficult to replicate, facilitating nearly $15.5 trillion in total payment volume in fiscal 2026.
Now, there has been some concern about how challenges posed by artificial intelligence and stablecoins could affect the company. But over many decades, many disruptors have tried and failed to challenge the traditional payment networks Visa and Mastercard.
If a company poses an actual threat, Visa and Mastercard end up partnering with or acquiring the firm. For instance, Visa is already doing a lot of work with stablecoins.
2. Interactive Brokers Group: 71% increase
Interactive Brokers Group (NASDAQ: IBKR) also recently announced a large dividend increase, raising its quarterly dividend from $0.0875 per share to $0.15 per share, a whopping 71% increase.
But the dividend is still relatively small, with a yield of only 0.72%. Similar to Visa, there's plenty of room to grow the dividend, as diluted earnings per share at Interactive Brokers in the third quarter were $0.69, which is over four times the current quarterly dividend.
Interactive Brokers is a popular online brokerage serving a wide range of investors, from hedge funds to retail investors, and has a strong global presence. The brokerage also offers a wide range of products investors can purchase, as well as a user interface that customers have clearly taken to.
The company has benefited immensely from increased trading and investment activity since the COVID-19 pandemic. In the company's recent third quarter, Interactive Brokers increased total accounts 35% year over year, bringing the total to over 5.5 million.
Commissions on the trading of certain financial instruments are the main driver of revenue, but the company has also grown smaller revenue sources, such as bank deposit sweeps and payments for order flow, nicely over the past year.
The stock has rocketed nearly 370% over the past five years.
Investors can buy either of these growing dividend stocks. Both have low yields and healthy growth prospects. Visa will likely be the more stable of the two companies, with recurring annual revenue that continues to grow solidly with economic activity.
Interactive Brokers is a bit more dependent on trading activity, so earnings may be more volatile, but it also offers greater upside potential.
Bram Berkowitz has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Interactive Brokers Group, Mastercard, and Visa. The Motley Fool recommends the following options: long January 2027 $43.75 calls on Interactive Brokers Group and short January 2027 $46.25 calls on Interactive Brokers Group. The Motley Fool has a disclosure policy.