3 Incredible Dividend Growth Stocks to Buy Right Now

The markets are at a crossroads in early 2025. The "Trump trade" that primarily lifted small and mid-cap stocks post-election has started to fizzle this January. Why? Investors are worried the Federal Reserve won't cut interest rates much this year, fearing it could reignite inflation.

While many investors sit on the sidelines during pullbacks, dividend growth investing offers a port in the storm. These stocks have historically outperformed the S&P 500 by combining steady price appreciation with rising income streams. The strategy works because companies that regularly boost their dividends tend to sport strong free cash flows, solid fundamentals, and management teams that put shareholders first.

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Here is an overview of three of the best dividend growth stocks in the market today.

A foundational tech play

Nvidia (NASDAQ: NVDA) designs and sells graphics processing units (GPUs) that power everything from gaming consoles to data centers. While gamers know Nvidia for its high-end graphics cards, the company has transformed into an artificial intelligence (AI) powerhouse, providing the specialized chips that run complex AI applications. The company makes money both from hardware sales and increasingly from its software and services that help customers optimize these chips.

The company's key competitive advantage lies in its commanding 80% market share in AI data center chips. This dominance stems from years of investing in specialized chip architecture and software tools that make its products the go-to choice for companies building AI applications. This entrenched position gives Nvidia significant pricing power and a wide economic moat.

While most investors focus on Nvidia's growth story, they often overlook its emerging dividend growth potential. The company's current 0.03% yield might seem tiny, but look under the hood: Nvidia has increased its dividend by 16.3% annually over the past five years while maintaining a conservative 1.11% payout ratio.

This minuscule payout ratio means Nvidia is using just over 1% of its earnings for dividends, giving it enormous room to accelerate payments as its AI-driven earnings continue to grow. While the stock trades at a premium 31.7 times forward earnings compared with the S&P 500's 23.4 multiple, its combination of market dominance and dividend growth potential offers investors a unique opportunity to capture both technological leadership and rising income.

A semiconductor equipment monopoly

ASML Holding (NASDAQ: ASML) stands alone in the semiconductor equipment industry as the only manufacturer of extreme ultraviolet (EUV) lithography machines-the essential technology needed to produce advanced computer chips. These machines, which cost over $380 million each, use incredibly precise lasers and mirrors to create the microscopic patterns that form integrated circuits on silicon wafers.

The company's unmatched technological advantage in EUV lithography represents one of the strongest monopolies in any industry. Major chipmakers essentially have no choice but to use ASML's service if they want to manufacture cutting-edge processors. This functional monopoly gives ASML exceptional pricing power and predictable cash flows from both equipment sales and ongoing maintenance services.

Like Nvidia, ASML's modest 0.92% dividend yield understates its income potential. The tech behemoth has boosted its dividend by a jaw-dropping 23.4% annually over the past five years while maintaining a conservative 35.2% payout ratio.

ASML thus has plenty of room to keep raising its dividend as semiconductor demand grows. While the stock's valuation of 29.5 times forward earnings represents a premium relative to the S&P 500, ASML's critical position as the enabler of all advanced AI chip production, combined with its monopoly status, justifies the premium for long-term investors.

A retail membership powerhouse

Costco Wholesale (NASDAQ: COST) operates a membership-only warehouse club chain that serves millions of loyal customers worldwide. The company's business model is unique: Rather than maximizing product margin, Costco makes most of its predictable profit from annual membership fees while selling high-quality bulk items at razor-thin margins. This approach has created one of retail's most sustainable competitive advantages.

Costco's business model is powerful because of its virtuous cycle. Members pay annual fees for access to exceptional values, which drives high renewal rates. Currently, that rate i over 90%. This loyal membership base allows Costco to maintain its low-price strategy while generating consistent fee income. The company then reinforces this loyalty through a carefully curated product selection and rigorous quality standards.

While Costco's current 0.47% dividend yield might appear modest, it masks the company's impressive dividend growth story. The retail giant has increased its dividend by 12.3% annually over the past five years while maintaining a conservative 26.4% payout ratio.

This low payout ratio means Costco has substantial firepower to boost future dividends, especially considering its growing membership base and expanding global footprint. The stock's rich valuation of 51.8 times forward earnings compared with the S&P 500 reflects Costco's premium status in retail-few companies can match its combination of recession-resistant membership income, pricing power, and consistent dividend growth potential.

Investing takeaway

Market volatility may spook some investors, but dividend growth investing offers a time-tested strategy for building wealth. These three industry titans demonstrate why: Each combines double-digit dividend growth with powerful competitive advantages and conservative payout ratios. For investors seeking both rising income streams and capital appreciation potential, these proven dividend growers merit serious consideration despite their premium valuations.

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George Budwell has positions in Costco Wholesale and Nvidia. The Motley Fool has positions in and recommends ASML, Costco Wholesale, and Nvidia. The Motley Fool has a disclosure policy.