We're all looking for stocks that will double for us, and keep right on doubling. But what about dividends that do so, too?

Find dividends that will double regularly
Doubling dividends might actually be easier to find, since they depend on a company's operations, not the whims of the market.

You can start your search at companies with superior past rates of dividend growth. These companies, some of which may be screaming "Buy Me!" right now, already have a tradition of returning cash to shareholders. And if the underlying companies are in good shape, that tradition is likely to continue. These may become stocks for the rest of your life.

To make this work, though, the companies must be in good shape. They need to have cash, they need to be generating cash, and they can't be facing a troubled operating environment.

Financial companies such as Citigroup and Washington Mutual, for example, have seen liquidity dry up in the recent subprime lending crisis. They've recently cut their dividends significantly to preserve cash. It's not always easy for investors to see such crises coming, so it's important to diversify your dividend payouts across industries, much like you diversify your portfolio as a whole.

Desirable traits
You also want to keep track of a company's payout ratio, which shows you how much of a company's earnings are being paid out as dividends. Very high payout ratios, especially those above 1.0, can be unsustainable, since companies can't pay out more than they take in for very long.

Cast an eye at the balance sheet, too, to see whether there are high or quickly growing debt levels, and what the company's cash stash looks like. If a company is piling up debt obligations, it may face an impending dividend slowdown. Remember, a company must pay its creditors before it pays its shareholders.

Finally, keep track of the company's cash flow statement, to make sure it's still generating cash.

Getting back to superior growth
Let's say you want to find dividends that double every six years. For that, you need a compound average annual growth rate of about 12.25%. Amazingly, that's not too difficult to find.

Here are seven companies with five-year growth rates of 12% or more:


5-Year Dividend Growth Rate



Tiffany (NYSE:TIF)


Monsanto (NYSE:MON)




Sherwin-Williams (NYSE:SHW)


Kimberly-Clark (NYSE:KMB)


Schlumberger (NYSE:SLB)


Source: CAPS.

What can you expect?
Now that you've found yourself gazing expectantly at some solid dividend payers, what can you expect from their rapidly doubling payouts?

Imagine you've invested in the Fingernail-on-Blackboard Car Alarm Co. (Ticker: AIEEEE), which is trading for $33 per share, pays a $1 dividend (for a current yield of about 3%), and has increased its dividends by an annual average of 15% over the past 10 years. If you buy 100 shares for $3,300, you receive $100 in dividends in the first year. In 20 years, the dividend will have increased roughly 16-fold, meaning you'll get $16 per share, or a total of $1,600. That's roughly half of your entire initial investment!

A decade after that, if the dividend has risen at just 10% in each of those years, it will have become more than $40, paying you more per share each year than you paid for each share originally.

Better still, as experienced dividend investors know, rising payouts often accompany stock appreciation, too. The stock price of a healthy, growing company doesn't remain in place for long. Sure, it might slump with the market for a while, or take a temporary dip if the company experiences a hiccup. But in the long run, it will probably increase, as a reflection of the enterprise's growing revenue, income, and dividend.

Where to find them
You can find these dividend doublers by studying the dividend histories of the companies you admire. Or you can run screens online for companies paying sizable dividends, and then see which of them have raised their dividends the most significantly in the recent past. Finally, you can also tap services such as our Motley Fool Income Investor newsletter, which recommends two strong dividend payers each month.

Its recommendations are ahead of the broader market by more than seven percentage points on average, and the picks offer a greater-than-5% average yield. A free trial will give you access to all past issues and all recommendations, as well as our list of top stocks for new money now.

So as you move through your investing life, remember our friend the dividend, and respect the power it can bring to your portfolio.

This article was originally published on April 8, 2008. It has been updated.

Longtime Fool contributor Selena Maranjian owns shares of no company mentioned in this article, though she has used Sherwin-Williams paint. Kimberly-Clark is a Motley Fool Income Investor pick. Sherwin-Williams is a Stock Advisor recommendation. The Motley Fool is Fools writing for Fools.