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 significantly above the rate of inflation in the last year:
|Company||1-Year Dividend Growth Rate|
|Colgate-Palmolive Company (NYSE:CL)||7.6%|
|3M Co (NYSE:MMM) ||7.5%|
|Johnson & Johnson (NYSE:JNJ)||7.3%|
|Altria Group Inc (NYSE:MO)||7.3%|
|The Procter & Gamble Company (NYSE:PG)||7%|
From Colgate to Softsoap to Speed Stick to Ajax, Colgate-Palmolive Company (NYSE:CL) is a leading provider of things that make you and your home clean. CAPS participants have awarded Colgate-Palmolive Company (NYSE:CL) with the highest five star rating, and the company is paying out a 2.2% dividend yield.
More than just Post-it Notes and Scotch tape, 3M Co (NYSE:MMM) operates in areas that include health care, industrial, and transportation. This innovative global powerhouse currently sports a five-star rating in CAPS and is yielding 2.1%.
A vast and diverse health care giant, Johnson & Johnson (NYSE:JNJ) strives to help people get well through its consumer products, pharmaceuticals, and medical devices. J&J’s popular products include Tylenol, Listerine, Band-Aid, Neosporin, and Splenda, among many others. This Fool favorite currently has a four-star ranking on CAPS and offers investors a 2.9% yield.
As the parent company of Philip Morris USA, Altria Group Inc (NYSE:MO) controls much of the U.S. tobacco market with Marlboro, Parliament, and other brands. Fools have given Altria Group Inc (NYSE:MO) a four-star rating in CAPS and its stock is yielding a hefty 5%.
A leader in consumer goods, The Procter & Gamble Company (NYSE:PG) offers products for household care, beauty and grooming, and health and well-being. Some of The Procter & Gamble Company (NYSE:PG) ‘s billion-dollar brands include Gillette, Head & Shoulders, Bounty, Crest, Oral B, and Tide. This dominant consumer goods titan has a four-star CAPS rating and offers investors a growing 2.9% dividend.