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 by 25% or more over the last year:

Company

1-Year Dividend Growth Rate

NorthStar Realty Finance (NYSE: NRF)

29.8%

US Bancorp (NYSE: USB)

27.3%

Church & Dwight (NYSE: CHD)

26.8%

Kroger (NYSE: KR)

25.6%

Monsanto (NYSE: MON)

25%

Source: S&P Capital IQ.

NorthStar Realty Finance is a real estate investment trust that operates as a commercial real estate investment and asset management company in the U.S. NorthStar focuses on originating, structuring, acquiring, and managing senior and subordinate debt investments secured primarily by commercial, multifamily, and health-care properties. NorthStar currently has a three-star ranking on CAPS and offers investors a sizable 9.2% yield.

US Bancorp is one of the largest bank holding companies in the country and it offers a diversified suite of financial services such as lending, depository, cash management, capital market, trust, and investment management services. US Bancorp currently sports a four-star rating in CAPS and is yielding 2.5%. Fools may also find it interesting that Berkshire Hathaway -- led by legendary investor Warren Buffett -- recently increased its investment in US Bancorp by more than 27%.

Church & Dwight develops, manufactures, and markets a range of household, personal care, and specialty products under valuable brand names like Arm & Hammer, Orajel, and OxiClean. Fools have given Church & Dwight a four-star rating in CAPS and its stock is yielding 1.9%.

Kroger operates a collection of supermarkets, drug stores, multidepartment stores, jewelry stores, and convenience stores under two dozen banners, including Kroger, City Market, Dillons, and Food 4 Less. In addition, Kroger also manufactures and processes some of the food for sale in its supermarkets. These diversified streams of revenue have helped Kroger steadily boost its dividend (currently 1.6%) and earn a three-star rating in CAPS.

Monsanto provides agricultural products for farmers worldwide. The company produces row crop and vegetable seeds, along with insect and weed control products under brands such as YieldGard and Roundup. CAPS participants have given Monsanto a three-star rating, and the company is paying out a growing 1.8% dividend yield.

The Foolish bottom line
Had you invested in these companies a year ago, you would have enjoyed total dividend increases ranging from 25% to nearly 30%. That level of growth would provide a substantial boost to just about any investor's dividend income. 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 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. 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.


 

Joe Tenebruso manages a Real-Money Portfolio for The Motley Fool and is an analyst on the Fool's Stock Advisor and Supernova premium service teams. You can connect with him on Twitter @Tier1Investor. Joe has no position in any stocks mentioned.

The Motley Fool recommends and owns shares of Berkshire Hathaway. 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 Motley Fool has a disclosure policy.