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
Cliffs Natural Resources
Joe Tenebruso manages a real-money Rising Star Portfolio for The Motley Fool and is an analyst for the Fool's Million Dollar Portfolio and Income Investor premium services. You can follow him on Twitter, where he goes by@Tier1Investor. Joe owns shares of Apple and has short Jan. 2014 $600 puts on Apple.
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