These stocks offer dividend growth and have cash flow to back it up, Wolfe says

Dividend growth stocks offer investors a combination of portfolio income and the prospect of capital appreciation, according to Wolfe Research. The firm highlighted a few names that fit the bill. Not all dividend payers are built equally. High dividend payers tend to be mature companies that are rewarding their shareholders with these payments rather than redirecting their profits toward vastly growing their businesses Dividend growers, however, may start off with modest yields, but the companies tend to have robust cash flows and are gradually stepping up their payments to shareholders. These names offer lots potential for long-term investors who buy in, reinvest dividends as they grow and benefit from price appreciation over time. “Companies with high free cash flow that are also raising their dividends have outperformed the S & P 500 by 5 percentage points historically,” said Chris Senyek, chief investment strategist at Wolfe Research, in an email to CNBC. “They also offer a margin of safety with high cash flow to fund future dividends.” To that end, the firm identified a list of companies that offer dividend growth and high estimated free cash flow to the firm yield in 2025. Hot artificial intelligence play Constellation Energy turned up on Wolfe’s list. Shares are up 180% in the past 12 months, and the stock has a dividend yield of 0.4%. Not only has Constellation seen huge price gains off its expected role in powering AI and data centers, but has also rewarded investors with dividend increases and share repurchases. Things are already looking rosy in 2025. Constellation announced earlier this month that it would acquire Calpine, a Houston-based power company, for about $16.4 billion . The acquisition builds out Constellation’s quiver of offerings, adding gas assets and geothermal plants. The company also recently issued its projections for standalone 2025 adjusted earnings per share, ranging from $8.90 to $9.60 per share. Consensus estimates from FactSet called for $9.09 per share. Constellation is a favorite on Wall Street, with 12 of 17 analysts covering the name rating it a buy or strong buy. Consensus price targets suggests shares could slip more than 3% from current levels, however. Oil rig operator Patterson-UTI Energy was another highlight on Wolfe’s list. Shares are down about 7% over the past 12 months, but they have perked up 11% in 2025. Patterson-UTI has a dividend yield of about 3.5%. In a business update last week, the company announced that it used nearly $300 million to buy back shares in 2024. Patterson-UTI also returned more than $400 million to shareholders last year when including dividends and share repurchases – topping its shareholder return target of 50% of its cash flow. Analysts like the stock, with 12 out of 17 deeming it a buy or strong buy, per LSEG. Consensus price targets see nearly 14% upside from current levels. Homebuilder Lennar also made it to Wolfe’s list. Shares are down more than 5% over the past 12 months, and the stock has a dividend yield of 1.4%. RBC Capital Markets upgraded Lennar to sector perform from underperform last week. “There is the opportunity for LEN to generate significant [free cash flow] and potentially accelerate returns to shareholders as it continues toward a more land-light strategy and becomes more disciplined on land spend,” wrote analyst Mike Dahl. There’s potential upside to the multiple from unlocking value in ancillary businesses, he added. To that end, Lennar is on track to spin off its subsidiary Millrose Properties, a land banking real estate investment trust. “This spin-off is a significant step in our transition to a land light manufacturing homebuilding model,” Lennar co-CEO Stuart Miller said in a press release . Wall Street is largely neutral on the name, with 15 out of 21 analysts rating it hold, according to LSEG. Consensus price targets call for 16% upside from current levels. — CNBC’s Michelle Fox contributed reporting.