5 Rock-Solid Stocks Growing Their Dividends Well Above Inflation

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 significantly above the rate of inflation in the past year.

Company

1-Year Dividend Growth Rate

Chevron (NYSE: CVX  )

12.1%

Coca-Cola (NYSE: KO  )

9.2%

UPS (NYSE: UPS  )

9.2%

Kinder Morgan Energy Partners (NYSE: KMP  )

8.8%

Kimberly-Clark (NYSE: KMB  )

7.6%

Source: S&P Capital IQ.

As a major integrated energy company, Chevron is involved in many aspects of the energy production spectrum, from the exploration and production of oil and natural gas, to the refining of crude oil and the manufacture of petrochemicals, to coal mining operations and alternative fuel sources. This energy titan currently sports a top-tier five-star rating in CAPS and is yielding 3.4%.

As the world's leading soft-drink company, Coca-Cola needs little introduction. Coca-Cola has built a beverage empire on the globally popular Coke and Diet Coke brands, but its offerings also include noncarbonated drinks such as Minute Maid juices, Powerade sports drinks, and Dasani bottled water. This Fool favorite has a four-star CAPS rating and offers investors a 2.9% dividend.

UPS's massive global network allows it to deliver packages to 220 countries and territories. Its tremendous scale and logistical expertise have helped UPS build a wide moat around its business, and the company's ample free cash flow generation has allowed it to return cash to shareholders in the form of share buybacks and rising dividends (currently 2.9%). CAPS participants no doubt appreciate this and have given UPS a four-star rating.

Kinder Morgan Energy Partners' valuable network of pipelines transports a host of products such as gasoline, diesel fuel, jet fuel, carbon dioxide, natural gas, and natural gas liquids to various markets in North America. These pipelines act as tollbooths -- earning a fee every time products pass through Kinder Morgan's network. And as a master limited partnership, Kinder Morgan Energy Partners passes on that cash flow to its unit holders in the form of a hefty 6.4% dividend, which has also helped KMP earn a five-star rating on CAPS.

With brands including Kleenex, Scott, Huggies, and Pull-Ups, Kimberly-Clark's paper and personal-care products hold the No. 1 or No. 2 brand share in more than 80 countries. In fact, nearly one-quarter of the world's population purchases Kimberly-Clark's products every day. Its top-selling brands have earned the trust of billions of consumers, and its solid 3.5% yield has led income-seeking investors to award Kimberly-Clark with a four-star CAPS rating.

The Foolish bottom line
Had you invested in these companies a year ago, you would have enjoyed total dividend increases ranging from 7% to 12%. 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. If you're interested in hearing about some 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 The Motley Fool's expert analysts called "Secure Your Future With 9 Rock-Solid Dividend Stocks." Today I invite you to download it at no cost to you. To discover the identities of these companies before the rest of the market catches on, you can access this valuable free report by simply clicking here now.


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  • Report this Comment On August 29, 2013, at 1:34 PM, whyaduck1128 wrote:

    I've yet to buy a stock based on the one year dividend growth rate. I may buy based on a HISTORY of dividend increases, but never just one year.

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