Dividend payers come in all sizes and from all industries. However, the quality that makes some stand out from the crowd is their ability to grow their payouts consistently. Not only do such companies provide shareholders with ever-increasing income streams, but dividend growth stocks have historically outperformed their stingier peers. That's why we're always on the lookout for companies that pay a growing dividend -- because they can do such a good job of creating wealth for investors over the long term. 

Three stocks that have this quality -- yet remain unknown to most investors -- are Holly Energy Partners (NYSE:HEP), Mercury General (NYSE:MCY), and FactSet Research Systems (NYSE:FDS). Here's a look at why we think this under-the-radar trio will keep rewarding shareholders in the years to come. 

A hand placing a coin on a stack of coins.

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53 in a row with more to go

Matt DiLallo (Holly Energy Partners): Relatively few investors have heard of Holly Energy Partners, the pipeline and storage MLP created by refiner HollyFrontier. Because of that, they've missed out on a dividend growth stock that recently announced its 53rd consecutive payout increase. In fact, this incredible dividend stock has raised its distribution every single quarter since it went public in 2004.

Holly Energy Partners has at least a few more increases left in the tank. It recently confirmed plans to boost its payout another 4% in 2018, fueled by two pipeline acquisitions it made late last year. That said, this year's increases are coming at a slower pace than 2017's 7% raise, and will give the company a tight coverage level of about 1.0 times cash flow. However, that's due to some recent strategic initiatives that set it up to grow in the coming years. For example, the company recently raised $110 million of new equity to pay down debt, which is a near-term headwind, but will increase its flexibility to pursue growth opportunities in the future.

In fact, the company already announced plans to expand its newly acquired pipelines later this year, and is seeking out new organic and external growth opportunities. As Holly Energy Partners captures these opportunities, they should provide it with the incremental cash flow needed to keep increasing its already-lucrative distribution, which currently yields an attractive 8.7%.

A fast-growing insurer with a red hot dividend

Rich Smith (Mercury General Corp.): The words "amazing" and "insurance" aren't often found together in a sentence, but if you ask me, car insurance provider Mercury General just might justify the combination.

Mercury's stock performance has been the opposite of red hot this past year -- its shares are down 20% against a broader stock market  that's up by more like 15%. Yet a diminished stock price combined with a healthy dividend payout have given it a yield that does look kind of amazing.

Cutting $2.50 per share in dividend checks annually, Mercury General stock yields 5.4%, or nearly three times the average dividend yield of the S&P 500. While the stock has a payout ratio on the high side at 95%, Mercury's earnings are currently sufficient to cover it. What's more, with earnings forecast to grow strongly over the next few years, that ratio should come down -- or Mercury's dividend could go up.

Analysts  polled by Yahoo! Finance agree that it is likely to grow its earnings at about 25% annually over the next five years. Yet the stock's P/E ratio is only 18.4, giving Mercury General stock a PEG ratio of only 0.7 -- 30% cheaper than what value investors generally agree is a "good price" to pay. Combined with a superb dividend yield, this is one insurer that could deliver truly amazing returns to investors who look past the stock price's recent underperformance.

A stack of cash.

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A compounding machine

Brian Feroldi (FactSet Research Systems): It is impossible to make smart investing decisions without reliable data. That's why professional money managers are always willing to spend big on software and tools that provide them with access to relevant information. 

While there are several companies that provide Wall Street with financial data, one of my favorites is FactSet Research Systems. FactSet aggregates information from hundreds of unique sources and sells it to clients in an easy-to-use format. With a client retention rate of 95%, it is clear that FactSet's customers place a high value on its services.

For investors, FactSet offers many traits that make it an ideal long-term investment:

  • FactSet's business is largely recession-proof, which is why the company has grown its revenue for 37 consecutive years.
  • Selling data is an asset-light business, so the company pumps out free cash flow.
  • The vast majority of FactSet's revenue is recurring in nature, and the company passes along regular price hikes.
  • Returns on capital are high.
  • Management regularly uses excess capital to buy back stock, make tuck-in acquisitions, and increase the dividend. 

When combined, these factors have allowed FactSet's investors to enjoy market-beating returns over the long run. While the company's dividend yield of 1% is modest, its payout ratio is just 32%, so there is plenty of room for future dividend increases.

All in all, I think that FactSet is an amazing business that should excite income and growth investors alike.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.