Would you like to know the worst-kept secret on Wall Street? Stocks with dividends that grow outperform stocks that don't pay dividends by a mile.
It stands to reason that companies committed to returning profits to shareholders outperform companies that don't. That said, the differences are probably more striking than you imagine. Data from Ned Davis Research and Hartford Funds shows that dividend growers and initiators delivered a 10.7% annual return during the period from 1973 through 2021. That's significantly better than the 8.2% return the S&P 500 index delivered over the same time frame and heaps better than the 4.8% return non-dividend-paying stocks delivered.
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Just because a stock has a history of dividend growth doesn't necessarily mean it can keep raising its payouts in the years ahead. These dividend payers stand out because they've been able to grow their payouts in recent years and they have what they need to continue making big payout bumps for many years to come.
Medical Properties Trust
Medical Properties Trust (MPW 2.19%) is a real estate investment trust (REIT) that owns 435 hospitals and other acute care centers spread across 10 countries and four continents. As a REIT, it can avoid paying income taxes by distributing at least 90% of profits to investors as a dividend. At the moment, that dividend offers an eye-popping 10.4% yield.
Distributing nearly all its profits hasn't stopped Medical Properties Trust from growing its operations or its distribution. The company has been able to raise its dividend payout by 45% over the past decade.
Despite steady raises, Medical Properties Trust's dividend program is well funded. Funds from operations (FFO), a proxy for earnings used to evaluate REITs, came in at $2.75 per share over the past year. That's more than twice as much as the company needs to meet a dividend commitment currently set at an annualized $1.16 per share.
CVS Health
It's hard to find an American unfamiliar with CVS Health's (CVS -0.37%) leading chain of retail pharmacies. What most of us don't realize, though, is that there's a unique collection of related businesses driving dividend growth for its investors.
CVS Health has been able to raise its payout by a whopping 169% over the past decade. This is all the more impressive because the company froze its payout in place for over three years to help pay for its $69 billion acquisition of Aetna. This is a health insurance benefits provider that collects premiums from an estimated 35 million people.
With over 1,100 walk-in medical clinics and 9,000 pharmacies, CVS Heath can provide many of the health benefits it also gets paid to manage. Shares of the stock offer a yield of just 2.6% at the moment. This isn't the most attractive starting point, but the company's lucrative position as both provider and manager of health benefits could help it continue raising its payout at a rapid pace for many years to come.
AbbVie
AbbVie (ABBV -1.61%) is a biopharmaceutical company that was spun off from Abbott Laboratories in 2013. The spin-off took place to shield the parent from the eventual loss of patent-protected market exclusivity for its lead drug, Humira.
Humira is an injection for the treatment of chronic immune system disorders that probably generated more than $20 billion in sales last year, with the vast majority of sales coming from the U.S. market. Humira's been so resilient that AbbVie has been able to raise its payout a stunning 270% over the past decade.
Shares of AbbVie offer an above-average yield of 3.7% right now because lower-cost biosimilar versions of Humira launching in the U.S. this year will cut heavily into total sales. Luckily, the company has plenty of recently launched drugs that can more than offset Humira's impending losses. For example, Rinvoq for arthritis and Skyrizi for psoriasis launched in 2019 and they're already generating over $8 billion in combined sales annually.
Savvy dividend investors will notice that the company used just 45% of the free cash flow its operations generated over the past year to meet its dividend commitment. This suggests it can maintain its payout even if Rinvoq, Skyrizi, and the rest of its product lineup underperform expectations. Put it together and AbbVie looks like one of the more reliable dividend growth stocks you can buy right now.
