5 Top Stocks Growing Their Dividends Well Above Inflation

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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.


1-Year Dividend Growth Rate

Aflac (NYSE: AFL  )


Dominion Resources (NYSE: D  )


Merck (NYSE: MRK  )


Emerson Electric (NYSE: EMR  )


Breitburn Energy Partners (NASDAQ: BBEPQ  )


Source: S&P Capital IQ

Aflac is the No. 1 insurance company in terms of individual insurance policies in force in Japan, insuring approximately one out of every four Japanese households, and is also the No. 1 provider of supplemental insurance in the United States. CAPS participants have awarded Aflac with a top five-star rating, and the company is paying out a 2.3% dividend.

Dominion is one of the nation's largest producers and transporters of energy, with a portfolio of approximately 27,000 megawatts of generation; 11,000 miles of natural gas transmission, gathering, and storage pipeline; and 6,400 miles of electric transmission lines. Dominion currently has a four-star ranking on CAPS and offers investors a solid 3.6% yield.

Merck is a global health-care company that provides various health solutions through its prescription medicines, vaccines, biologic therapies, animal health, and consumer-care products. Fools have given Merck a four-star rating in CAPS, and its stock is yielding 3.6%.

Emerson Electric is a diversified global manufacturing and technology company offering a wide range of products and services in the industrial, commercial, and consumer markets through its process management, industrial automation, network power, climate technologies, and commercial and residential solutions businesses. Emerson sports a five-star rating in CAPS and is yielding 2.5%.

Breitburn Energy Partners is an independent oil and gas master limited partnership, focused on the acquisition and development of oil and gas properties, with assets consisting primarily of crude oil and natural gas reserves located in California, Wyoming, Florida, Texas, Michigan, Indiana, and Kentucky. This Fool favorite has a top five-star CAPS rating and offers investors a sizable 10.7% yield.

The Foolish bottom line
Had you invested in these companies a year ago, you would have enjoyed total dividend increases ranging from 5% to 7%. 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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Related Tickers

5/25/2016 4:01 PM
AFL $69.85 Up +0.30 +0.43%
Aflac CAPS Rating: *****
BBEPQ $0.00 Down +0.00 +0.00%
BreitBurn Energy P… CAPS Rating: ***
D $70.94 Up +0.16 +0.23%
Dominion Resources CAPS Rating: ****
EMR $52.09 Up +0.92 +1.80%
Emerson Electric CAPS Rating: *****
MRK $56.57 Up +0.97 +1.74%
Merck & Co., Inc. CAPS Rating: ****