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 20% or more over the last year:
| Company | 1-Year Dividend Growth Rate |
|---|---|
| The Home Depot, Inc. (NYSE:HD) | 21.4% |
| Accenture Plc (NYSE:ACN) | 20% |
| Moody’s Corporation (NYSE:MCO) | 20% |
| Safety Insurance Group, Inc. (NASDAQ:SAFT) | 20% |
| Target Corporation (NYSE:TGT) | 20% |
Source: S&P Capital IQ
The Home Depot, Inc. (NYSE:HD) is the world’s largest home improvement specialty retailer, with more than 2,200 retail stores in the United States, Canada, and Mexico.
Its stores sell home improvement products, building materials, and lawn and garden products, as well as provide installation, home maintenance, and professional service programs to do-it-yourself, do-it-for-me, and professional customers. The Home Depot, Inc. (NYSE:HD) currently has a three-star ranking on CAPS, and offers investors a 2.1% yield.
Accenture Plc (NYSE:ACN) is a top-tier management consulting, technology services, and outsourcing organization. Its areas of specialization include finance, enterprise performance, systems integration, risk management, sales, and talent management, as well as industry-specific consulting services. Accenture Plc (NYSE:ACN) currently sports a four-star rating in CAPS, and is yielding 2.3%.
Moody’s Corporation (NYSE:MCO) provides credit ratings, research covering debt instruments and securities, as well as software and advisory services for economic analysis and financial risk management. Moody’s Corporation (NYSE:MCO) believes itself to be an essential component of the global capital markets. Fools, however, only see fit to give Moody’s Corporation (NYSE:MCO) a lower-tier two-star rating in CAPS. Still, its stock has outperformed the S&P 500 over the last year, and is yielding a growing 1.6%.
Safety Insurance Group, Inc. (NASDAQ:SAFT) provides private passenger automobile insurance in Massachusetts. It also offers a portfolio of property and casualty insurance products, including commercial automobile, homeowners, fire, umbrella, and business owner policies. CAPS participants have awarded Safety Insurance Group with the highest five-star rating, and the company is paying out a hefty 4.7% dividend yield.
Target Corporation (NYSE:TGT) shoots to be more upscale than rival retailers with a focus on design and innovation. Its stores sell household essentials, sporting goods, toys, electronics, apparel, food, and pet supplies, among many other items. Its stock has a four-star CAPS rating, and is yielding 2.5%. Dividend investors may also find it interesting that Target has paid a dividend every quarter since going public in 1967.
The article 5 Stocks Growing Their Dividends by 20% Per Year originally appeared on Fool.com and 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 Accenture, Home Depot, Moody’s, and Safety Insurance Group.
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