Income investors typically focus on stocks with high dividend yields. However, investors with a longer time horizon should also consider dividend growth stocks, as these may provide more income over the long run.

This is especially true when it comes to quality dividend growth stocks. These 3 dividend growth stocks have raised their dividends for over 25 years, and should be able to continue raising their dividends for many years.

Automatic Data Processing (ADP)

Automatic Data Processing is one of the largest business services outsourcing companies in the world. The company provides payroll services, human resources technology, and other business operations to more than 700,000 corporate customers. Automatic Data Processing was founded in 1949 and currently trades with a market capitalization of $125 billion, producing annual revenue of about $20 billion. 

ADP posted first quarter earnings on October 30th, 2024, and results were better than expected on both the top and bottom lines. Adjusted earnings-per-share came to $2.33, which was 12 cents ahead of estimates. Earnings were up from $2.08 in the year-ago period. Revenue was up 6.7% year-over-year to $4.8 billion, beating expectations by $30 million. 

Management noted revenue and margin performance exceeded expectations as the company benefited from new business bookings, strong revenue retention and higher client funds interest revenue. Employer Services revenue was $3.26 billion, up 7% year-over-year while segment earnings grew 15% to $1.16 billion. That was good enough from pretax margin to rise from 33.1% of revenue to 35.7%. 

PEO Services revenue was $1.57 billion, up 7% year-over-year, while segment earnings rose 1% to $226 million. Pretax margin was lower from 15.2% of revenue to 14.3%. ADP acquired WorkForce Software, a workforce management solutions provider that specializes in supporting large, global enterprises, for $1.2 billion in cash.

Automatic Data Processing has compounded its adjusted earnings-per-share at a rate of more than 13% per year over the last decade, which we believe it can come close to matching moving forward.

Much of this growth is likely to be driven by the company’s Professional Employer Organization (PEO) Services segment, which continues to deliver very impressive revenue growth. Importantly, this revenue growth has been accompanied by meaningful margin expansion, which means that the segment’s growth has had an outsized impact on the firm’s bottom line. In addition, the company’s buyback has been a low single-digit tailwind annually for earnings-per-share growth.

Cintas Corporation (CTAS)

Cintas Corporation is the U.S. industry leader in uniform design, manufacturing & rental. The company also offers first aid supplies, safety services, and other business-related services.

Cintas reported second quarter earnings on December 19th, 2024, and results were largely in line with expectations. Organic revenue was 7.1% in the quarter, which excludes forex translation and the impacts of acquisitions.

Revenue was up 7.6% year-on-year to $2.56 billion, meeting expectations. Earnings came to $1.09 per share, which was seven cents ahead of estimates.

Gross margin was $1.28 billion, up from $1.14 billion a year ago. As a percentage of revenue, gross margin was 49.8%, up 180 basis points from a year ago. 

Operating income was 18.4% higher, and was up 210 basis points as a percentage of revenue at 23.1%. On a dollar basis, earnings came to $449 million, up from $375 million a year ago, up 20%. On a per-share basis, earnings were $1.09, up from 90 cents.

Cintas has compounded its earnings-per-share at a rate of about 16% annually since 2012. Over full economic cycles, we believe the company can deliver continued earnings growth in the range of 9% per year. 

Its two primary growth levers are higher organic revenue and higher margins. Cintas has proven it can grow revenue consistently over the years. It is also adept at removing cost redundancies, which drives operating margin higher over time.

CTAS has increased its dividend for 42 years.

Exxon Mobil (XOM)

Exxon Mobil is a diversified energy giant with a market capitalization above $400 billion. In 2022, the upstream segment generated 67% of total earnings while the downstream and chemical segments generated 27% and 6% of total earnings, respectively. 

In early November, Exxon reported (11/1/24) financial results for the third quarter of fiscal 2024. The company grew its production 5% sequentially thanks to the acquisition of Pioneer. However, oil prices decreased, primarily due to weakening consumption from China. As a result, earnings-per-share dipped -10% sequentially, from $2.14 to $1.92. 

Management improved its guidance last year, now expecting meaningful production growth until 2025 and a much lower breakeven point thanks to the addition of exceptionally low-cost barrels. The 2023 acquisition of Pioneer Natural Resources for $60 billion, will boost growth. 

As Pioneer was the largest oil producer in Permian, Exxon expects to more than double its Permian output, to 2.0 million barrels per day in 2027. As a result, Exxon now expects to reach production of about 2.0 million barrels per day in the Permian Basin by 2027. 

Guyana, one of the most exciting growth projects in the energy sector, is the other major growth project of Exxon. Exxon has more than tripled its estimated reserves in the area, from 3.2 billion barrels in early 2018 to about 11.0 billion barrels now.

XOM has increased its dividend for over 40 years and shares currently yield 3.6%.