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 30% or more over the last year:
| Company | 1-Year Dividend Growth Rate |
|---|---|
| Polaris Industries Inc. (NYSE:PII) | 32.8% |
| Williams Companies, Inc. (NYSE:WMB) | 31.7% |
| Legg Mason Inc (NYSE:LM) | 31.4% |
| Amtrust Financial Services, Inc. (NASDAQ:AFSI) | 30.8% |
| Yamana Gold Inc. (USA) (NYSE:AUY) | 30% |
Source: S&P Capital IQ
Polaris Industries Inc. (NYSE:PII) designs, manufactures, and markets high-performance motorized products including all-terrain recreational and utility off-road vehicles, such as ATVs and side-by-sides; snowmobiles; on-road vehicles, including motorcycles and small vehicles; and related parts, garments, and accessories. Polaris Industries Inc. (NYSE:PII) currently has a four-star ranking on CAPS and offers investors a 1.4% yield.
Williams Companies, Inc. (NYSE:WMB) is an energy infrastructure company that owns and operates midstream gathering and processing assets, and interstate natural gas pipelines. In addition, Williams Companies, Inc. (NYSE:WMB) processes oil sands off-gas and produces olefins for petrochemical feedstocks . Fools have given Williams Companies, Inc. (NYSE:WMB) a three-star rating in CAPS, and its stock is yielding 4.1%.
Legg Mason Inc (NYSE:LM) is a diversified group of global asset management firms that provide clients with a broad spectrum of equity, fixed income, liquidity, and alternatives solutions, including mutual funds, college savings plans, variable annuities, and separately managed accounts. Legg Mason Inc (NYSE:LM) has a three-star rating in CAPS and is yielding 1.5%.
