The Surprising Dividend Growth Stock That Just Raised Its Payout Again

The stock market offers investors more than one path to make a profit, but few have proven as successful and enduring as dividend investing. Especially during market corrections such as we’re experiencing now, dividend stocks buffer against the downturn through regular income streams that offset some of the capital depreciation that occurs.

While income-generating stocks are a powerful remedy, dividend growth stocks, or those that routinely raise their payout. Data from Hartford Funds and Ned Davis Research shows that over the 51-year period between 1973 and 2024, stocks that initiated a dividend and then grew it over time enjoyed annual average returns of 10.24% compared to 9.17% returns by stocks that just paid a dividend.

Both categories of stocks easily trounced non-payers by more than a 2-to-1 margin. 

Sometimes, though, some companies have such a bright light shone on them for other reasons that the fact they are a top dividend growth stock is hidden to many. For over a decade one particular has been rewarding shareholders with a rapidly rising stream of income, which when coupled with its future growth prospects, should be on the radar of most investors.

Growing by leaps and bounds

​​Netherlands-based semiconductor equipment manufacturer ASML Holdings (NASDAQ:ASML) is a premiere dividend growth stock with a payout over the last 10 years that has risen at a 23% compound annual growth rate. Over the last five years it has been at an 18% CAGR. And management says it plans to continue returning “significant amounts of cash to our shareholders through growing dividends and share buybacks.” It just announced it was raising the payout by around 5% for 2025.

Since 2010, ASML has generated a 23% annual total return CAGR for investors compared to the 22% return by the semiconductor index and a 17% return by the Nasdaq exchange. 

There remains a long runway of growth for this semiconductor equipment manufacturer. It has a monopoly on the critical equipment chipmakers need to make AI chips. Its extreme ultraviolet lithography (EUV) machines are needed by the semiconductor industry to clean the wafers to a pristine condition before manufacturing begins. Yet with demand for AI chips accelerating, there should be few limits on its potential.

Navigating a challenging market

Investing in ASML does present some risk, though. Despite its near monopoly status in certain semiconductor equipment, much of its sales are made in China, its largest export market accounting for 36% of total 2024 revenue.

That means it needs to ensure it is compliant with restrictions on trade, which it says it is, but it represents an ongoing risk as tensions between the U.S. and China amp up. It’s also added greater volatility to the stock.

ASML stock is down 7.5% in 2025 and 28% over the past year. Shares have tumbled 42% from the all-time high last summer.

Semiconductors are a cyclical industry and the ebb and flow of demand across various segments have hit ASML from time to time. While everyone seems to want to talk about these days is artificial intelligence chips, memory and logic remain large and important markets too. Although AI helped the memory business have a strong year last year, the logic portion of ASML’s saw a slower ramp.

Delays in orders from some important customers, such as Intel (NASDAQ:INTC) and Samsung caused ASML to lower revenue guidance last October for 2025, leading to a dramatic drop in the stock price.

Still, the long-term trajectory of the tech industry, which will need ASML’s equipment to keep growing, ensures there will be sufficient demand for its further expansion.

Key takeaway

ASML’s dividend yields 1% annually. Because the semiconductor equipment maker generates copious amounts of free cash flow, which has grown faster than the dividend itself at 30% annually, it has a FCF payout ratio of just 27%. That ensures there will be sufficient cash available to pay for and grow the dividend going forward. 

Wall Street expects ASML to enjoy long-term earning growth of 22% annually, not much different than the 24% annual growth it experienced over the past five years. With ASML stock being fairly valued against that growth rate, the dividend payout becomes more attractive in the current spiraling market.

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