Dividend growth stocks have treated investors well over the years. According to a study by Ned Davis Research, companies that initiated or increased their dividends have generated an average annual total return of nearly 10% going all the way back to 1972. Non-growers, on the other hand, produced total annual returns of slightly more than 7% over that time frame, while the return of non-payers has been less than 3%.

That outperformance adds up over time. Case in point: Magellan Midstream Partners (NYSE:MMP). Over the last decade, the master limited partnership (MLP) has tallied a total return of more than 540%, which crushed the S&P 500's total return of around 190%. And that outperformance could continue as the MLP expects to keep growing its high-yield payout at a steady pace for at least the next few years -- which makes it a great stock to consider buying.

A jar of coins next to rising coin stacks, with a hand holding a coin above one of the stacks.

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A model of consistency

Magellan Midstream Partners has increased its distribution to investors 65 times since its initial public offering (IPO) in 2001, only failing to raise it during the darkest days of the financial crisis. Overall, the company has delivered a 12% compound annual growth rate in its payout since its IPO, fueled by its ability to build and buy pipelines and other related energy infrastructure assets that move the needle.

One of the drivers of the company's success has been its ability to self-fund growth by using a combination of retained cash flow and incremental debt to finance expansion. Over the last decade, for example, Magellan has invested $5.4 billion in expanding its portfolio but has only issued $260 million in new equity. That approach has enabled the company to consistently grow cash flow on a per-unit basis, allowing it to steadily increase its distribution to investors.

What's even more remarkable is that Magellan has achieved this steady growth rate while maintaining a best-in-class balance sheet, backed by one of the highest credit ratings and lowest leverage ratios among MLPs. Magellan has been able to keep a strong financial profile by only investing in projects and acquisitions that can earn high returns on capital, as opposed to growing for the sake of growth, which has gotten some of its peers into trouble in recent years.

Pipelines laid out for construction at sunset.

Image source: Getty Images.

A full tank to continue growing

Magellan Midstream Partners currently has a large backlog of organic expansion projects underway that position the company to grow its cash flow at a steady pace in the coming years. The company expects to invest $2.5 billion on high-return projects through 2020.

One of the newest additions to its backlog is the Permian Gulf Coast oil pipeline, which is a joint venture with fellow MLPs Energy Transfer Partners (NYSE: ETP) and MPLX as well as refiner Delek US Holdings. The 600-mile pipeline could transport as much as 1 million barrels of oil per day, according to Energy Transfer Partners, depending on final commitments from shippers. The partners anticipate that the much-needed oil pipeline could be in service by the middle of 2020. It would connect fast-growing oil supplies from the Permian Basin to Energy Transfer's terminal in Nederland, Texas, as well as Magellan's East Houston terminal, where crude would flow through their respective distribution systems in those regions. 

Magellan Midstream Partners anticipates that the projects it has under construction should enable the company to increase its distribution to investors by 8% this year and at a 5% to 8% annual rate in 2019 and 2020. Meanwhile, the company noted that it has more than $500 million of potential expansion projects under evaluation, including possibly doubling the size of its Pasadena Marine Terminal joint venture with Valero Energy (NYSE:VLO). Magellan and Valero are currently investing $410 million apiece into a two-phase project to build this storage and export terminal near Texas' coast, but could spend another $700 million to double its size in the future. Capturing additional expansion projects like that would enhance Magellan's ability to continue increasing its distribution in the decade ahead.

The future could be as bright as the past

Magellan Midstream Partners has a long history of steadily growing its distribution to investors, which has enabled it to enrich them over the years. That trend appears poised to continue since the company has a large supply of expansion projects underway that should give it the cash flow boost necessary to keep increasing its distribution. That visible income growth -- which increases the likelihood that Magellan can outperform the market -- is what makes it a top option for investors to consider buying these days.

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.