Dividend stocks are widely regarded as reliable sources of capital gains. However, a closer look at the topic shows that the dividend stocks that perform the best over long periods are those that consistently increase their payouts. These stocks are often referred to as "dividend growers" in the financial literature.
This finding is based on two factors. First, companies that steadily grow their cash distributions to shareholders often sport high-quality businesses with strong fundamentals, a wide economic moat, and stellar management. Second, shareholders who faithfully hold onto dividend-grower stocks and reinvest the dividend every quarter benefit from the power of compounding.
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Which dividend-growth stocks are attractive right now? The two blue chip dividend payers discussed below have increased their cash distributions at some of the fastest rates in the entire market over the past five years. Read on to learn more.
Visa: Five-year dividend-growth rate of 15.7%
Visa (V 1.32%) is a global leader in digital-payment technology solutions, serving more than 200 countries. The company has delivered outstanding returns of 102% to its shareholders in the last five years, including dividends. This compares favorably to the S&P 500, which returned 96.9% in the same period (including dividends and before taxes). The two-year U.S. Treasury note, on the other hand, only gained 2.54% in the past five years. Visa, therefore, has outperformed these two common benchmarks.
NYSE: V
Key Data Points
Visa seems well positioned to continue its upward trajectory for the foreseeable future. It has a dominant position in a growing market that is projected to grow by double digits annually until 2032, driven by the increasing adoption of digital payments worldwide. Additionally, Visa regularly repurchases its shares, resulting in a steadily decreasing outstanding share count. The digital-payments giant has reduced its outstanding shares by a remarkable 18.5% in the last 10 years.
V Average Diluted Shares Outstanding (Quarterly) data by YCharts.
With a double-digit dividend-growth rate, a top-line forecast to grow by low double digits over the next several years, and an entrenched competitive position in an ultra-fast-growing industry, Visa stands out as a best-in-class dividend grower.
Oracle: Five-year dividend-growth rate of 10.7%
Oracle (ORCL +2.02%) is a global leader in the information technology sector. It operates three main segments: cloud and license; hardware; and services. The cloud and license segment is the most significant, contributing 83% of the total revenue in the last four quarters. Oracle faces fierce competition in the cloud market, but it is leveraging artificial intelligence (AI) to potentially gain a competitive advantage.
Now, Oracle may not have the same type of overwhelmingly dominant market position in its industry as Visa, but it is a leader in one of the fastest-growing markets in the world. Keeping with this theme, the rising tide of cloud-based services has been a boon for the company's shareholders. In the past five years, Oracle stock has delivered total returns of 141%, thanks to its high single-digit revenue growth, aggressive share-buyback policy, and hefty dividend hikes.
NYSE: ORCL
Key Data Points
Best of all, Oracle's shareholders are also likely to enjoy above-average returns in the next five years due to its exposure to the high-growth cloud-computing market, as well as its supercharged shareholder-rewards program.
