The 3 Stocks With the Biggest Dividend Potential in 2023

The January rally may be subsiding, but as of this writing, the bulls are still trying to push the market higher. Maybe growth stocks are coming back into fashion. But right now, it still looks like a good time to find dividend stocks to buy.

There’s ample reason for caution. In case you haven’t noticed, a lot is going on in the economy and the world. Inflation is showing no signs of abating at a meaningful level. The U.S. military is shooting down strange objects that are still a mystery. And then there’s the upcoming debate about raising the debt ceiling.

However, like any asset class, there are differences between dividend stocks. The best of the best have strong cash positions and earnings growth that not only support but help to grow their dividends. And in this article, I give you three dividend stocks to buy that offer both the opportunity for dividend growth and some stock price growth as well.

Chevron (CVX)

In his State of the Union address, President Joe Biden declared that fossil fuels would be needed for the next 10 years. I’ll take the over on that, but either way, the outlook for energy stocks continues to look bullish in 2023. And when you’re looking at energy stocks that are also smart dividend stocks to buy, Chevron (NYSE:CVX) is an exceptional choice.

According to the U.S. Energy Department, prices for Brent crude oil, a global benchmark, will be 18% below 2022 levels. But oil prices will still be historically high at $83 a barrel. And Chevron is still well above its breakeven price, which was $50 as of their latest earnings report. But Chevron is also one of the leading exporters of liquified natural gas (LNG), which is seeing increased demand, particularly in Europe.

To be fair, Chevron has already increased its dividend in 2023. On January 25, 2023, the oil and gas giant announced it was increasing its quarterly payout to $1.52 per share. That comes out to $6.08 per share annually. And with a payout ratio of around 31% to go along with a free cash flow of $37 billion in 2022, the dividend is sustainable now and will likely continue to grow in the future.

Chevron is also on the list of Dividend Aristocrats, a designation highlighting a select group of companies that have increased their dividends for at least 25 years.

Costco (COST) 

The January reading of the Consumer Price Index (CPI) showed that inflation might be stickier than we hoped. Who knew, right? But I am not particularly eager to bet against the American consumer. That’s why I’m making Costco (NASDAQ:COST) the next company on my list of dividend stocks to buy.

Consumers are handling inflation in several ways. But aside from simply not buying items, they are buying private label brands or changing where – and how – they shop. Both of those behaviors play nicely with Costco’s business model.

Consumers can shop in bulk, which often means they can stick with their favorite brands. And Costco also has a private-label brand, which is an understatement. The company’s Kirkland Signature brand delivers approximately 25% of the company’s revenue and covers over 350 different products.

The COST stock dividend has been growing at over 11%, and with a payout ratio of just 26% to go along with healthy free cash flow, Costco should have no problem delivering a dividend increase later in 2023. This makes it easy to overlook the company’s dividend yield, which sits at just 0.75%.

Lockheed Martin (LMT)

If Russia’s war with Ukraine wasn’t enough to keep geopolitical tensions, are we now looking at an intergalactic threat? That remains to be seen, but the temperature between China and the U.S. is becoming frostier by the day. And Lockheed Martin (NYSE:LMT) is a solid choice when you’re looking for a stock that can help your portfolio weather whatever comes next.

Whether or not the company’s signature F-35 jets will find their way to Ukraine, demand is only likely to increase. And that goes along with a backlog of over $135 billion on the company’s books.

Lockheed Martin is also generating a significant amount from its space sector. And with a lucrative contract from NASA to build 12 Orion spacecraft, my guess is that the company will beat expectations for earnings growth of around 7% over the next five years. If it does, that will make the company’s dividend payout, which is currently around 55%, look very sustainable, as will be growth in the LMT stock dividend, which is currently a robust $12 per share per year.

On the date of publication, Chris Markoch had a LONG position in CVX stock. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.