Income investors have always relied on dividend stocks due to both their generous yields and their propensity to boost their payouts over time. Unlike bonds, which typically pay the same amount of interest year in and year out until maturity, the best dividend stocks gradually raise the amounts they pay shareholders over time, making it easier for investors to ensure their portfolio income keeps up with their rising costs of living.
2014 isn't quite over just yet, but it's not too early to take a look at the dividend stocks that have distinguished themselves this year by providing big increases in their dividends compared to their levels toward the end of 2013. With that in mind, I looked for large-cap stocks yielding at least 2% to find out which ones had managed to see the most impressive rising dividends. The following four stocks stood out from the crowd, so let's take a look to see whether they remain compelling investments right now.
CF Industries Holdings
Fertilizer giant CF Industries Holdings (NYSE:CF) took a long time getting its dividend up to respectable levels, but in the past year it finally emerged onto the scene as a legitimate dividend stock. As recently as August 2013, CF paid just $0.40 per share -- a pittance on a stock whose per-share price had already topped the $200 mark. But CF responded with a huge 150% dividend hike late last year, and it followed that up with another 50% increase in August that finally brought the stock's yield to a reasonable 2.2%.
Unlike many fertilizer companies, CF Industries has performed well throughout most of 2014, as its focus on nitrogen-based products has taken advantage of favorable prices for the raw inputs needed for production. In stark contrast to potash producers, which have struggled in wildly shifting market conditions due to a changing competitive environment, CF Industries has put itself in a good position to take a leadership role in the nitrogen-fertilizer production niche. If CF can consolidate the industry through acquisitions and continue to benefit from favorable economic conditions, then its dividend could have even further to rise.
National Oilwell Varco
Oilfield services giant National Oilwell Varco (NYSE:NOV) boosted its dividend by more than 75% in June, following up on a 2013 increase that doubled its quarterly payout. When the recent decline in energy stocks is factored in, National Oilwell Varco now yields an impressive 2.8%.
Some investors fear that the recent plunge in energy prices will lead to reduced production activity, and that in turn could hurt Varco's sales volumes. Yet even with its increased dividend, National Oilwell Varco is only paying out about 30% of its earnings -- giving investors plenty of margin of safety, even if earnings deteriorate due to poor conditions in the energy industry.
Host Hotels & Resorts
Hotel operator Host Hotels & Resorts (NYSE:HST) had a tough task to achieve in recent years, with the financial crisis forcing it to make major dividend cuts. Yet with regular penny-per-share increases, accelerating with a nickel-per-share rise in September, Host's 67% higher payout (compared to year-ago levels) means that the real-estate investment trust now pays a 3.4% yield -- and, more importantly, it has returned to the payout levels it enjoyed before the financial crisis.
Moreover, just this week, Host Hotels said that it would pay a $0.06 per share special dividend on top of its regular $0.20 per share distribution. Real estate has been a hot area lately, and the demand for income investments has helped support its stock price considerably while also boosting the value of its properties. Host has further to climb, especially if the global economy starts to pick up more strongly.
Refinery giant Phillips 66 (NYSE:PSX) has doubled its dividend over the past two years. With a 28% increase in May following on the heels of a 25% boost in late 2013, Phillips 66 has been able to reward shareholders thanks to the low costs of crude-oil inputs and high prices for its refined products.
The recent drop in gasoline prices has made some investors wary about refining companies, but if crude keeps falling then Phillips 66 should see continued declines in its costs as well. In the long run, that could help send its dividend skyward once more.
Dividend stocks play a vital role for income investors, and having the best stocks available is important. Sustainable dividend growth is a desirable attribute for any dividend stock, but you always have to look at a company's business to ensure that it will still be able to generate the income you're relying on receiving as a dividend.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool recommends National Oilwell Varco. The Motley Fool owns shares of CF Industries Holdings and National Oilwell Varco. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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.