3 Brilliant Dividend Growth Stocks With Sub-50% Payout Ratios

The path to building lasting wealth through dividend investing requires identifying companies that combine sustainable payout ratios with consistent dividend growth. This strategy allows investors to benefit from both rising income streams and the potential for capital appreciation over time.

Studies indicate that stocks with specific dividend characteristics tend to generate superior total returns over extended holding periods, compared to most other asset classes. The key metrics are payout ratios below 75% and five-year annualized dividend growth rates above 6%.

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Three blue chip dividend payers tick these critical boxes, making their shares worth considering right now. Read on to find out more about these brilliant dividend growth stocks.

Technology giant transforming enterprise computing

Microsoft (NASDAQ: MSFT) has transformed from a pure software company into a diversified technology powerhouse. Its expansion into cloud computing through Azure has opened new growth avenues while strengthening the tech behemoth's competitive position in enterprise technology.

Microsoft's modest 0.77% dividend yield masks the exceptional dividend growth story unfolding at the company, thanks to its transformation. Turning to the specifics, the technology giant has increased payouts by 10.3% annually over the past five years while keeping its payout ratio on the lower end of the spectrum at 24.7%.

When it comes to valuation, Microsoft shares trade at a hefty forward price-to-earnings ratio (P/E) of 32.5, above the S&P 500's at 23.6. This premium valuation reflects its massive cloud-computing opportunity through Azure, a dominant enterprise-software ecosystem that powers business productivity worldwide, and a nearly unparalleled ability to pour money into artificial intelligence (AI) research.

Overall, Microsoft's cloud leadership and pristine balance sheet make it an ideal cornerstone holding for dividend growth investors.

Digital-payments powerhouse scaling globally

Mastercard (NYSE: MA) operates one of the world's largest payment networks, benefiting from the ongoing shift toward digital transactions. The company's global infrastructure and brand recognition create significant barriers to entry into the payments industry.

On the dividend front, Mastercard's 0.58% dividend yield reflects management's focus on long-term dividend growth, rather than current income. The payment network's five-year annualized dividend growth rate of 14.5% ranks among the highest in the financial sector, while its lean 19.3% payout ratio provides substantial room for future increases.

Mastercard's elite dividend profile isn't cheap, however. Its stock trades at a forward P/E of 32.3, representing a significant premium to the S&P 500.

The company's sizable valuation is justified by its powerful duopoly position in the global payments space (in conjunction with Visa), high-margin business model requiring minimal capital investment, and massive growth runway as cash transactions continue shifting to digital payments worldwide.

Mastercard's sizable profit margins and global payment network create a dividend growth machine built for the digital economy.

Defense leader advancing critical technologies

Lockheed Martin Corporation (NYSE: LMT) is the largest defense contractor in the United States. The company's expertise in advanced military systems and space technology positions it to benefit from the projected increase in global defense spending in the years ahead.

Lockheed Martin stock offers a generous 2.69% yield and a 7.21% five-year annualized dividend growth rate. The defense contractor's reasonable 45.6% payout ratio means it retains over half its earnings to fund research and development in hypersonics and space systems, while still having ample room to boost future dividends.

At just 17.2 times forward earnings, Lockheed Martin stock appears to be a bargain relative to the benchmark S&P 500. Indeed, the stock's low valuation appears unwarranted, given the company's status as the largest U.S. defense contractor, expertise in hypersonics and space systems, and predictable revenue from long-term government contracts.

Lockheed Martin's deep moat in critical defense technologies powers dividend safety and growth, making it a solid addition to an income-heavy portfolio.

Lean into quality with these three dividend payers

Successful dividend growth investing requires a straightforward approach: identify quality companies and consistently accumulate shares through dollar-cost averaging. Microsoft, Mastercard, and Lockheed Martin are prime candidates for this time-tested wealth-creation strategy.

Each company offers a powerful combination of advantages: robust economic moats protecting their market positions, strong fundamental performance, clear growth trajectories, management teams focused on shareholder value, and well-structured dividend programs. This rare confluence of favorable characteristics makes these companies particularly attractive options for dedicated dividend growth investors.

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George Budwell has positions in Lockheed Martin, Microsoft, and Visa. The Motley Fool has positions in and recommends Mastercard, Microsoft, and Visa. The Motley Fool recommends Lockheed Martin and recommends the following options: long January 2025 $370 calls on Mastercard, long January 2026 $395 calls on Microsoft, short January 2025 $380 calls on Mastercard, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.