5 Stocks Growing Their Dividends by 20% Per Year

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:

Company

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%
IBM 21.4%
Had you invested in these companies five years ago, you would have enjoyed total dividend increases ranging from 164% to 486%. And, importantly, all of these companies grew their payout much faster than the rate of U.S. inflation during that time, thereby protecting (and growing) your purchasing power. But more important to investors today is to identify the companies that will grow their dividends substantially in the years ahead. In fact, Inergy has announced that it will be cutting its payout, and other companies on this list may have to do the same. On the other hand, companies like Apple (Nasdaq: AAPL  ) that have recently initiated dividend programs and have low payout ratios and tremendous earnings growth prospects are well positioned to grow their dividends for many years. If you're interested in hearing about some other excellent companies that are likely to boost their dividends from this point forward, I'd like to offer you a brand-new free report from Motley Fool expert analysts called "Secure Your Future With 9 Rock-Solid Dividend Stocks." Today I invite you to download it at no cost to you. Get instant access to the names of these nine high yielders -- it's free.

Joe Tenebruso manages a real-money Rising Star Portfolio for The Motley Fool and is an analyst for the Fool's Million Dollar Portfolio and Income Investor premium services. You can follow him on Twitter, where he goes by@Tier1Investor. Joe owns shares of Apple and has short Jan. 2014 $600 puts on Apple.

The Motley Fool owns shares of Annaly Capital Management and Apple. Motley Fool newsletter services have recommended buying shares of Apple and Annaly Capital Management and creating a bull call spread position in Apple. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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  • Report this Comment On March 30, 2012, at 1:34 PM, monthlyincome wrote:

    Joe, NRGY can't sustain its current dividend so it will be cut in the next few months.

  • Report this Comment On March 30, 2012, at 2:10 PM, 3634abc wrote:

    Your inclusion of NRGY in the group make your motive suspect.It is common knowledge that Inergy will cut their dividend for the May distribution.

  • Report this Comment On April 02, 2012, at 5:56 PM, 1971Mach1 wrote:

    I agree with the reviewers that NRGY will cut their dividend, but I have not found any article or news how much or what percentage will be cut.

    I think the current price has reflected that uncertainty. (FTR was the same way, FTR dropped a lot before rebound to the current level, only after the dividend cut was known.)

    The insiders have been buying that makes the whoe situation more interesting.

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