5 Stocks Growing Their Dividends by 20% Per Year

If you'd like to boost your dividend income, take a look at these stocks.

Joe Tenebruso
Joe Tenebruso
Mar 29, 2012 at 12:00AM

The Motley Fool Income Investor team's mandate is to seek out and invest in the world's best dividend stocks. As part of our process, we focus not just on a stock's current yield, but also on the long-term growth potential of its dividends. We understand that many of our members rely on these dividend payments as a source of income, and, well, who doesn't like a raise? 

But there are other reasons we value dividend growth so highly, and they're well supported by research. For instance, a study by C. Thomas Howard published in Advisor Perspectives found that for every percentage point a stock's yield rises, its annual return increases by 0.22 percentage points if it's a large cap, 0.25 if it's a mid cap, and 0.46 if it's a small cap. Even better, Howard found that dividend-growing stocks outperformed dividend cutters by 10 percentage points per year from 1973 to 2010 and beat both flat- and no-dividend stocks. And the icing on the cake is that Howard showed that this outperformance came with a third less volatility. Higher returns, less volatility-induced stress, and a steadily growing income stream -- what's not to love?

With that in mind, here are five stocks that have grown their dividends by more than 20% annually over the past five years:


Five-Year Annualized Dividend Growth Rate

Inergy (NYSE: NRGY) 42.4%
Annaly Capital (NYSE: NLY) 33.8%
Cliffs Natural Resources (NYSE: CLF) 28.5%
Telefonica (NYSE: TEF) 21.7%
IBM 21.4%
Had you invested in these companies five years ago, you would have enjoyed total dividend increases ranging from 164% to 486%. And, importantly, all of these companies grew their payout much faster than the rate of U.S. inflation during that time, thereby protecting (and growing) your purchasing power. But more important to investors today is to identify the companies that will grow their dividends substantially in the years ahead. In fact, Inergy has announced that it will be cutting its payout, and other companies on this list may have to do the same. On the other hand, companies like Apple (Nasdaq: AAPL) that have recently initiated dividend programs and have low payout ratios and tremendous earnings growth prospects are well positioned to grow their dividends for many years. If you're interested in hearing about some other excellent companies that are likely to boost their dividends from this point forward, I'd like to offer you a brand-new free report from Motley Fool expert analysts called "Secure Your Future With 9 Rock-Solid Dividend Stocks." Today I invite you to download it at no cost to you. Get instant access to the names of these nine high yielders -- it's free.