3 Growth Dividend Stocks to Buy in January

By Todd Campbell, Dan Caplinger, and Matthew DiLallo Markets Fool.com

What better way to start of the new year than with some top dividend growth stocks to add to your portfolio? Our Motley Fool contributors scoured the universe of dividend stocks to find intriguing companies they think make sense to buy now, and their list includes Mosaic(NYSE: MOS), W.P. Carey (NYSE: WPC), and Fred's (NASDAQ: FRED). Read on to find out if these stocks are right for your income portfolio.

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IMAGE SOURCE: GETTY IMAGES.

Todd Campbell (Mosaic): Agriculture demand enjoys long-tail support tied to an increasingly larger and wealthier global population, and that's good news for Mosaic shareholders.

Mosaic is the planet's top producer of phosphate, and following its acquisition of Vale'sfertilizer assets earlier this month, the company is perfectly positioned to tap growing demand in key markets such as Brazil.

Mosaic's management expects that acquiring Vale will be accretive to earnings in 2018, and overall, they're targeting $80 million in after-tax savings from synergies annually.

The $2.5 billion acquisition (half cash, half stock) raises questions regarding whether it's better to pay down debt or increase dividends, but assuming the dividend remains intact, then buying Mosaic shares near five-year lows, when they're yielding 3.77%, seems to make sense, especially since fertilizer prices are stabilizing lately.

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Historically, fertilizer prices are strongest in spring, and unsurprisingly, that has translated into solid returns for investors in Mosaic. Mosaic's shares have finished the first quarter higher in 9 of the past 10 first quarters, returning an average and median 8.21% and 6.01%, respectively. Obviously, it's anyone guess if this year pans out similarly, but given the opportunities ahead for this company, I think shares are priced cheaply enough to make this a stock to buy in January.

The lazy landlord

Matt DiLallo (W.P. Carey): While many investors like the thought of being a landlord and cashing rent checks each month, few have any desire to fix toilets or chase after deadbeat tenants. We can add the management team of real estate investment trust W.P. Careyto that group. However, because it focuses on owning specific types of properties, it avoids most of the hassles of being a landlord without giving up any of the benefits.

In W.P. Carey's case, it typically buys single-tenant buildings like industrial warehouses, corporate headquarters, and stand-alone retail stores, which it leases to credit-worthy tenants under long-term net leases. Those contracts mean it's often the tenant's responsibility to fix any problems and pay most of the expenses like insurance and property taxes. That allows W.P. Carey to sit back and collectthe rent checks, which it then distributes to investors via dividends. Further, thanks to the strength of the company's portfolio -- which has grown to 910 properties that have an average occupancy of 99.1% and nearly 10 years remaining on the leases -- the company produces very stable cash flow to support those dividends.

The company also has an excellent track record of growing that payout, having increased it every year since going public in 1998.Driving this growth is a combination of rental increases and the company's ability to acquire the right properties that fit its business model. This past year, for example, the company completed $386 million of on-balance sheet acquisitions, which it funded by recycling capital out of lower-quality assets via $481 million in property sales. Meanwhile, because the company targets repeatable sale-leaseback transactions with growing businesses that need capital around the globe, it does not have any shortage ofopportunities to expand its portfolio. As such, it's a pretty safe bet that W.P. Carey can continue its dividend growth streak in 2017, making January as good a time as any to buy.

Meet the newest big drugstore chain

Dan Caplinger (Fred's): Some companies fly beneath the radar until a big event pushes them into the limelight. That's the case for Fred's, which was a little-known retailer until it announced earlier this month that it would buy 865 Rite Aid stores for $950 million. The deal will help allow Rite Aid to complete its own merger with larger drugstore chain Walgreens Boots Alliance, but it will also make the Fred's Pharmacy chain the third largest drugstore network in the U.S., and shareholders were extremely excited about that move. The stock has doubled in the past month, and news that institutional investor Alden Global Capital has taken a 25% stake in Fred's has generated even more interest.

Fred's has treated its shareholders well on the dividend front, and even after the huge share-price gain, the stock still yields 2.1%. Its payout has tripled since early 2009, and although it has been flat lately, past practice has shown a willingness to share profits with investors. A deal of this size will likely divert capital away from immediate dividend growth, but the unique opportunity to become a major player in an important and growing industry is too much for Fred's to pass up. Despite its already-impressive gains, Fred's is worth looking at for long-term investors who believe in the prospects for drugstore chains to tap into the rising need for healthcare services.

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Dan Caplinger has no position in any stocks mentioned. Matt DiLallo has no position in any stocks mentioned. Todd Campbell has no position in any stocks mentioned. The Motley Fool owns shares of Companhia Vale. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.