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

Kinder Morgan Energy Partners (NYSE: KMP  )

8.8%

Johnson & Johnson (NYSE: JNJ  )

7.3%

Intel (NASDAQ: INTC  )

7.1%

Procter & Gamble (NYSE: PG  )

7%

Enterprise Products Partners (NYSE: EPD  )

6.6%

Source: S&P Capital IQ.

Kinder Morgan Energy Partners' 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 unitholders in the form of a hefty 6.6% dividend, which has also helped KMP earn a four-star rating on CAPS.

A vast and diverse health-care giant, Johnson & Johnson strives to help people get well through its consumer products, pharmaceuticals, and medical devices. J&J's popular products include Tylenol, Listerine, Band-Aid, Neosporin, and Splenda, among many others. This Fool favorite currently has a four-star ranking on CAPS and offers investors a 3% yield.

Intel designs, manufactures, and sells integrated digital technology platforms worldwide. Its microprocessors and chipsets power millions of PCs and servers around the world. Intel is also attempting to establish a beachhead in the massive smartphone and tablet markets, which could drive revenue growth for the chip giant in the years ahead. Fools have given Intel a four-star rating in CAPS, and its stock is yielding 3.9%.

A leader in consumer goods, Procter & Gamble offers products for household care, beauty and grooming, and health and well-being. Some of Procter & Gamble's billion-dollar brands include Gillette, Head & Shoulders, Bounty, Crest, Oral B, and Tide. This dominant consumer-goods titan has a four-star CAPS rating, and offers investors a growing 3.1% dividend.

Enterprise Products Partners is a midstream energy company providing a range of services to producers and consumers of natural gas, natural gas liquids, crude oil, and certain petrochemicals. Its pipelines help to provide the needed infrastructure to support growing energy production in the U.S., and its stock offers investors a sizable 4.5% dividend. CAPS participants no doubt appreciate this and have awarded Enterprise Products Partners with the highest five-star rating.

The Foolish bottom line
Had you invested in these companies a year ago, you would have enjoyed total dividend increases ranging from 5% to nearly 9%. 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 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.


Read/Post Comments (2) | Recommend This Article (2)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 28, 2013, at 9:59 PM, drgreg4stocks wrote:

    This is a good attempt at an investing idea, but unless you have been hiding under a rock, most people following Intel know that they failed to raise its dividend this week. That is six quarters, or one and a half years, without an increase. Your article gives the impression of a 7% increase when there is actually no increase in the past year at all.

    I am long Intel and think it has many opportunities to return cash to me in future dividend raises as well as capital gains. However, incorrect facts can lead to investors who make bad decisions. I want people owning Intel that have full knowledge of what it is about and are willing to stay with it with or without a given year's dividend increase.

  • Report this Comment On September 29, 2013, at 8:56 AM, TMFGuardian wrote:

    Hi zxvb98789, and thanks for the comment. The way CapIQ calculated Intel’s dividend growth rate was based upon the last 4 paid dividends reported in Intel’s quarterly financial statements, compared to the previous 4 quarters of reported paid dividends. So in this case, CapIQ is using $0.90 in reported paid dividends from Q3 2012 to Q2 2013, versus $0.84 in reported paid dividends from Q3 2011 to Q2 2012. That’s where that 7.1% growth rate number came from. But you’re correct; when factoring in the declared dividend to be paid in December, Intel will have not raised its dividend for six quarters. But I do think that Intel will raise its dividend again soon, and likely at a rate well above the current rate of inflation.

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