The Motley Fool Income Investor team's mandate is to seek out and invest in the world's best dividend stocks. As part of our process, we focus not just on a stock's current yield, but also on the long-term growth potential of its dividends. We understand that many of our members rely on these dividend payments as a source of income, and, well, who doesn't like a raise?
But there are other reasons we 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% annually over the past five years:
Five-Year Annualized Dividend Growth Rate
|Inergy (NYSE: NRGY )||42.4%|
|Annaly Capital (NYSE: NLY )||33.8%|
|Cliffs Natural Resources (NYSE: CLF )||28.5%|
|Telefonica (NYSE: TEF )||21.7%|