The Dow Jones Industrials (DJINDICES:^DJI) have gained the respect of investors around the world not just because of their status as high-quality blue-chip companies that offer stability and security. They also represent a solid dividend-producing portfolio, with the Dow as a whole offering a dividend yield of 2.4% and with many of its components yielding far more than that.
But as smart dividend investors know, yield is only part of the story when it comes to picking the best dividend stocks. It's also important to find companies that will be able to grow their dividends well into the future, to ensure that the money you receive will rise to meet the increased demands of inflation and other financial needs. So with that in mind, I looked at the components of the Dow Jones Industrials that have succeeded in raising their dividends the most over the past five years. Here are the four top companies.
4. Microsoft (NASDAQ:MSFT), 2.6% dividend yield, 15.7% average annual dividend growth rate since 2008
Microsoft's dividend has more than doubled since early 2008 as investors have slowly realized that the company doesn't have the growth prospects it once had. Because of the huge amounts of cash flow that Microsoft generates from sales of its legacy operating-system and office-productivity software, it has increasingly been able to afford more lucrative payouts to its shareholders. Moreover, given the mixed success the company has had using capital in other ways, such as through acquisitions, investors seem just as happy to keep more cash in hand.
3. IBM (NYSE:IBM), 1.8% yield, 16.3% growth rate
Unlike many tech stocks, IBM has paid a dividend for decades, but until recently, the company tended to make small payments and even smaller increases on an annual basis. Yet in the mid-2000s, the company dramatically accelerated its dividend growth, and since the beginning of 2008, the dividend has risen on six different occasions to jump by 138%. Even with the latest rise, however, the company yields less than 2%, and traditionally, IBM has preferred using spare cash for buybacks that will lead to a direct upward push to earnings per share.
2. Disney (NYSE:DIS), 1.1% yield, 16.5% growth rate
Like IBM, Disney has long had a reputation for stingy dividend payments. But in the past three years, the company has boosted its dividend by 150%, sticking with an old-style single annual payout rather than dividing its dividend into quarterly payments. The massive growth in the company's stock price, though, has kept the yield down to just over 1%. As long as its strong pipeline of content from its Marvel, Pixar, and now Lucasfilm divisions keeps producing consistent blockbusters, Disney will have more than enough resources to keep rewarding shareholders for their loyalty.
1. UnitedHealth Group (NYSE:UNH), 1.4% yield, 95.2% growth rate
No, that's not a typo. UnitedHealth has gone from making just a $0.03 per share token annual payment as recently as early 2010 to paying quarterly dividends of $0.2125 per share. Yet even so, the newest member of the Dow still has catching up to do, with its yield ranking near the bottom of the list among Dow stocks. Fortunately, the health insurance giant pays only 15% to 20% of its earnings to shareholders via dividends, leaving plenty of flexibility to raise that payout in the years to come.
Go for the dividend gold
When it comes to dividends, many investors believe in grabbing up as much money as you can as soon as possible. But by focusing on lower-yielding stocks that nevertheless have the commitment to boost investor payouts gradually over time, you can get long-term results that will end up being a lot more impressive.
Fool contributor Dan Caplinger has no position in any stocks mentioned. You can follow him on Twitter: @DanCaplinger. The Motley Fool recommends UnitedHealth Group and Walt Disney and owns shares of IBM, Microsoft, and Walt Disney. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.