The Biggest Dividend Boosters of the Past 10 Years

Dividend stocks have never been more popular. But in trying to decide which dividend stock is best for their portfolios, too many people focus on the wrong thing -- and it could cost them plenty over the years.

When you first look at a dividend-paying stock, the most readily available piece of information that's available to you is the stock's dividend yield. In contrast, it takes a lot more digging to find out what may well be far more important over the long haul: how much a company has increased its dividend over the years.

Now and later
Dividend yield is the most popular measure of a dividend-paying stock for several reasons. First and foremost, it's simple to calculate. Just divide the amount of the dividend payment by the current price of the stock, and you're done. There's no need to look up any historical figures, adjust for stock splits, or anything other complicated calculations.

Moreover, dividend yield is important as a current measure of how the stock compares not only against other dividend stocks but also different types of income-paying investments. By comparing yields across stocks, you can make an informed decision about whether you're getting the most income you can from your stock portfolio. And by comparing dividend yields to the income yields of other investments, such as bonds, you'll get a sense of which types of investments command premium prices and which offer reasonable bargains right now.

But sometimes, it makes more sense to give up the bird in hand for two in the bush. A stock may fall short of its peers in terms of current yield, but if it has a record of consistently boosting that payout over time, then before you know it, its yield may well pass up those of its competitors. That's a reward worth waiting for.

Giving you big raises

I looked through nearly 1,000 large-cap stocks to identify the ones that had increased their dividends the most since mid-2001. Here's are the top five:

Stock

Current Yield

Annualized 10-year Dividend Growth Rate

Waste Management (NYSE: WM  ) 3.7% 62.5%
UnitedHealth Group (NYSE: UNH  ) 1.3% 52.2%
Fastenal (Nasdaq: FAST  ) 1.7% 44.9%
Garmin (Nasdaq: GRMN  ) 6.0% 42.5%
Comcast (Nasdaq: CMCSA  ) 1.9% 41.3%

Source: Capital IQ, a division of Standard and Poor's.

Look only at these stocks' current yields, and many of them don't stand out much from the crowd. For instance, UnitedHealth yields far less than the overall S&P 500 index, let alone some of the highest-yielding dividend payers. But over time, all of these companies have demonstrated a commitment to increasing dividends over time, and if they continue to do so, their yields may well expand in the years to come.

Of course, it's essential to dig further before just going out and buying these stocks. Much of Waste Management's and UnitedHealth's increases come from the fact that they made largely token annual payouts for years before adopting significant dividend policies -- Waste Management in 2004 and UnitedHealth just last year. Comcast went for years without paying a dividend until starting it up again in 2008.

But several of these stocks have more room to grow. After paying $1.50 in a single dividend payment last year, Garmin is set to pay a total of $2 in dividends over the next four quarters. And Fastenal has not only increased its payout over time but also made it more frequent, going from annual to semiannual to quarterly dividends over the past 10 years.

Honorable mention
Discriminating dividend investors shouldn't necessarily settle for fast growth rates, though. The best strategy may involve a combination of strong growth and high current yields. Intel (Nasdaq: INTC  ) and McDonald's (NYSE: MCD  ) weren't the cream of the crop for dividend growth rates, but they did crack the top 20, and each has a dividend yield of more than 3%.

Right now, everyone's jumping into dividend stocks without even thinking much about them. That gives smart investors a chance to take advantage of the stampede. If you only choose the best dividend stocks you can find, you'll have an edge over those who are buying whatever they can get their hands on willy-nilly.

Meanwhile, if you're a fan of dividend stocks, be sure to check out the Fool's free report listing 13 high-yielding dividend stocks we recommend. They won't all give you monthly dividends, but they'll still get you the income you need.

Tune in every Monday and Wednesday for Dan's columns on retirement, investing, and personal finance.

Fool contributor Dan Caplinger has never ridden a horse, but working cattle herds sounds a lot like herding investors. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of UnitedHealth and Intel and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of UnitedHealth, Waste Management, Intel, and McDonald's, as well as creating diagonal call positions on Intel and UnitedHealth. 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 Fool's disclosure policy gives you a boost every day.


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