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 midcap, 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

Coca-Cola (NYSE: KO  )

9.5%

Kinder Morgan Energy Partners (NYSE: KMP  )

8.5%

Altria (NYSE: MO  )

7.8%

Johnson & Johnson (NYSE: JNJ  )

7.6%

Procter & Gamble (NYSE: PG  )

7%

Source: S&P Capital IQ.

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. Fools have given Coca-Cola a four-star CAPS rating, and its stock pays a 2.8% dividend.

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 6.7% dividend, which has also helped KMP earn a four-star rating on CAPS.

As the parent company of Philip Morris USA, Altria controls much of the U.S. tobacco market with Marlboro, Copenhagen, Skoal, and other brands. Fools have given Altria a four-star rating in CAPS, and its stock is yielding a sizable 5.1%.

Johnson & Johnson, the vast and diverse health-care giant, 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 is paying a 2.8% dividend.

Consumer goods leader 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 2.9% dividend.

The Foolish bottom line
Had you invested in these companies a year ago, you would have enjoyed total dividend increases ranging from 7% to 9.5%. 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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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 November 10, 2013, at 1:45 AM, RyanPeckyno wrote:

    These are all proven performers -- that is for sure. But the payout ratios of some of these companies is becoming a little high. KO, PG, MO, JNJ, and KMP all have payout ratios greater than 50%. Fortunately, they all have stable, predictable businesses.

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