Dividend investors would be wise to focus not just on a stock’s current yield, but also on the long-term growth potential of its dividends. That’s because strong businesses that consistently raise their dividend payouts reward shareholders with a steadily rising income stream that essentially equates to a raise every year. And, well, who doesn’t like a raise?
But there are other reasons to value dividend growth so highly, and they’re well supported by research. For instance, a study by C. Thomas Howard published in Advisor Perspectives found that for every percentage point a stock’s yield rises, its annual return increases by 0.22 percentage points if it’s a large cap, 0.25 if it’s a mid cap, and 0.46 if it’s a small cap. Even better, Howard found that dividend-growing stocks outperformed dividend cutters by 10 percentage points per year from 1973 to 2010 and beat both flat- and no-dividend stocks. And the icing on the cake is that Howard showed that this outperformance came with a third less volatility. Higher returns, less volatility-induced stress, and a steadily growing income stream — what’s not to love?
With that in mind, here are five stocks that have grown their dividends by more than 20% over the last year:
| Company | 1-Year Dividend Growth Rate |
|---|---|
| CME Group Inc (NASDAQ:CME) | 24.3% |
| Mattel, Inc. (NASDAQ:MAT) | 24.1% |
| Texas Roadhouse Inc (NASDAQ:TXRH) | 23.5% |
| WellPoint, Inc. (NYSE:WLP) | 23.3% |
| Harris Corporation (NYSE:HRS) | 21.3% |
Source: S&P Capital IQ.
CME Group Inc (NASDAQ:CME) operates the leading global exchange and clearinghouse for futures contracts that financial institutions, corporations, governments, and traders use to manage risk. CME Group Inc (NASDAQ:CME) currently has a four-star ranking on CAPS and offers investors a 2.5% yield.
Mattel, Inc. (NASDAQ:MAT) is the worldwide leader in the design, manufacture, and marketing of toys and family products, with a global distribution network that spans across more than 150 nations. Mattel, Inc. (NASDAQ:MAT)’s best-selling brands include Barbie, Hot Wheels, Monster High, American Girl, Thomas & Friends, and Fisher-Price. Fools have given the toymaker a four-star rating in CAPS, and its stock is yielding 3.5%.
CAPS participants no doubt appreciate this as well as Texas Roadhouse Inc (NASDAQ:TXRH)’s growing 1.9% dividend and have awarded the company a four-star rating.
WellPoint, Inc. (NYSE:WLP) is one of the nation’s largest health benefits companies, offering network-based managed-care plans to the large and small employer, individual, Medicaid, and senior markets in the United States. WellPoint’s scale is impressive; approximately one in nine Americans receives coverage for medical care through WellPoint, Inc. (NYSE:WLP)’s affiliated plans. WellPoint, Inc. (NYSE:WLP) has a four-star rating in CAPS and is yielding 1.7%.
Harris Corporation (NYSE:HRS) is an international communications and information technology company serving government and commercial markets in more than 125 countries. The company’s 6,000 engineers and scientists develop communications products, systems, and services used by organizations such as the National Security Agency and the U.S. military. This Fool favorite has a top five-star CAPS rating, and offers investors a growing 2.9% dividend.
The article 5 Stocks Growing Their Dividends by 20% Per Year originally appeared on Fool.com is written by Joe Tenebruso.
Joe Tenebruso manages a Real-Money Portfolio for The Motley Fool and is an analyst on the Fool’s Stock Advisor and Supernova premium service teams. You can connect with him on Twitter: @Tier1Investor. Joe has no position in any stocks mentioned. The Motley Fool recommends Mattel, Texas Roadhouse, and WellPoint and owns shares of WellPoint.
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