The Dow's 4 Fastest Dividend Growers

One of the most important traits that investors look for in a stock these days is whether it pays a healthy dividend. With so little income available from bonds and other traditional income investments, dividend stocks have become the go-to option for investors who need to draw cash regularly from their investment portfolios.

While many investors look solely at current yield as their gauge of whether a dividend stock is a smart buy, the better bet is to focus on long-term dividend growth. If a company can boost its payout consistently over the years, then it will eventually reward shareholders much more than a company that pays an unsustainably high dividend yield that shrinks in the near future.

With that goal in mind, let's look today at the four companies among the Dow Jones Industrials (DJINDICES: ^DJI  ) that have done the best job of boosting their dividend payouts over the past five years.

1. UnitedHealth Group (NYSE: UNH  ) , up 95% annually since 2008
Until a few years ago, health-insurance giant UnitedHealth made only a token annual payment of $0.03 per share, which equated to a dividend yield of about 0.1%. But beginning in 2010, UnitedHealth made a much greater commitment to letting investors share in its wealth by moving to much larger quarterly dividend payments. At the time, the move resulted in a payout increase of more than 1,500%.

Since then, UnitedHealth has stayed committed to its new strategy, with two consecutive annual increases of 30% each in 2011 and 2012. With the yield now at 1.6%, UnitedHealth still ranks among the lowest-yielding stocks in the Dow. But with Obamacare likely to expand the company's rolls of insured customers greatly and a recent move to take a big stake in a major Brazilian health-insurance company, UnitedHealth stands to keep seeing growth in its core business, and that should equate to even higher payouts down the road. With the company currently paying just 15% of its earnings to shareholders, UnitedHealth has plenty of room for increases in the future.

2. IBM (NYSE: IBM  ) , up 17% annually since 2008
Big Blue also has a modest dividend yield of just 1.7%. But after years of token increases, IBM started getting serious about its payouts back in 2006, when it announced a 50% jump in its quarterly dividend. Since then, growth has slowed somewhat, but steady $0.10-per-share quarterly increases in 2010, 2011, and 2012 have upped the overall payout by more than half in the past three years.

IBM's strategy of broadening its business to incorporate a wider scope of IT products and services has served the company well so far. With plenty of growth initiatives still in the pipeline, IBM is poised to keep producing the greater profits that it will need to keep its dividend moving in the right direction.

3. Microsoft (NASDAQ: MSFT  ) , up 15% annually since 2008
For all the criticism that Microsoft has taken in recent years for being behind the times, the software giant still has its Office and operating system software as massive cash cows generating plenty of free cash flow. Microsoft hasn't been hesitant to send more of that cash back to shareholders in the form of dividends, with annual increases in the 15% to 25% range since 2010.

Looking forward, Microsoft faces strategic challenges in figuring out how to adapt its business to the mobile revolution. Yet despite the widely heralded death of the PC industry, it would take a big transformation in the business community to dislodge Microsoft's entrenched position as a key driver of productivity in the global economy. In the interim, dividend investors should be happy with the stock's 3.3% yield.

4. Intel (NASDAQ: INTC  ) , up 14% annually since 2008
Intel faces many of the same challenges as Microsoft, with Intel's PC-chip dominance under fire from competitors that have done a better job of penetrating the booming mobile-device chip space. That may explain why Intel's dividend growth has slowed lately, with two increases of 15% and 16% in 2011 giving way to a more modest 7% rise last year.

Again, until PC sales disappear entirely, Intel will continue to get a lot of cash flow from its existing processor business. Add in the potential that the company's mobile offerings will start gaining traction, and Intel's 4.1% dividend yield starts looking even more attractive.

Get the best dividends you can
These stocks have all demonstrated great success in managing their businesses to produce rising amounts of cash that they then turn around and pay to shareholders. If you're an investor seeking income, you should look to these and similar stocks in deciding which investments to add to your portfolio.

Of these stocks, the one with the highest dividend growth also has the most potential for overall business growth. Far from a death knell for health insurers, Obamacare could be the biggest driver of revenue and profit growth for UnitedHealth. Read The Motley Fool's premium research report on the company and you'll find out more about the prospects for UnitedHealth in a post-Obamacare world. Don't miss out; simply click here now to claim your copy today.


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  • Report this Comment On March 10, 2013, at 1:22 PM, mr091468 wrote:

    I know nothing about IBM and UHC, but MSFT and INTC stink as far as capital appreciation and dividend % are concerned. Neither have done anything for years. Try looking at MLP's in the energy industry to get good appreciation over time and decent dividend (distribution) payouts which steadily increase over time.

  • Report this Comment On March 10, 2013, at 2:20 PM, david4801 wrote:

    Going forward if UHC were to increase its dividend by lets say 18% annually it would take over a decade to reach the level that T or MO pays now

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