Dividend stocks can make you rich. It's as simple as that. While they don't garner the notability of high-flying growth stocks, they're also less likely to crash and burn. And over the long term, the compounding effect of the quarterly payouts, as well as their growth, adds up faster than most investors imagine.
In fact, 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 -- three powerful aspects of dividend growth investing that can help you grow your wealth.
With that in mind, here are five elite businesses that are likely to grow their dividends substantially in the years ahead.
MasterCard (NYSE:MA) and Visa (NYSE:V) are dominant global credit card payment networks. Both companies have built valuable brands and enjoy powerful network effects. And with 85% of global transactions still being made via cash or check, MasterCard and Visa are extremely well positioned to profit from the massive global shift toward electronic payments and away from cash transactions. Their strong cash flows should allow them to continue to boost their dividend payouts for many years to come.
Whole Foods Market (NASDAQ:WFM) is far more than simply a premium-priced grocery store; it's fast becoming a premium lifestyle brand and has earned a reputation as a purveyor of some of the healthiest foods and beverages on the market, at a time when consumers are beginning to care more and more about what they put into their bodies. Its strong competitive position in the natural and organic foods market should lead to sustained growth in its store count, revenue, profits, and ultimately, the dividends it pays to shareholders.
Starbucks (NASDAQ:SBUX) is the dominant brand among coffeehouses in the United States and, increasingly, around the globe. Starbucks is taking more control over the customer experience by bringing more of the product lines sold in their cafes in-house. From La Boulange bakery products to Evolution Fresh juices, to yogurt thanks to its new partnership with Danone, Starbucks is taking action to improve the quality of its offerings. I think that will help drive significant same-store sales growth at it cafes, as well as dividend increases for its shareholders.
Apple (NASDAQ:AAPL) is a company that needs little introduction. Its beloved brand, high-quality products, powerful ecosystem, and cash-filled balance sheet are well-known among investors. Yet I believe they are being substantially undervalued by market participants. With a host of catalysts that could drive its share price substantially higher, I expect Apple to outperform the market while returning increasing amounts of cash to investors via share buybacks and steadily rising dividends.
The Foolish bottom line
Many investors focus on a stock's current dividend yield. But to create truly long-lasting wealth, most investors would be best served by striving to identify the companies that will grow their dividends substantially in the years ahead. If you're interested in hearing about some more companies that are likely to boost their dividends from this point forward, I'd like to offer you a free report from The Motley Fool's expert analysts called "Secure Your Future With 9 Rock-Solid Dividend Stocks." Today I invite you to download it at no cost to you. To discover the identities of these companies before the rest of the market catches on, you can access this valuable free report by simply clicking here now.
John Mackey, co-CEO of Whole Foods Market, is a member of The Motley Fool's board of directors.
Joe Tenebruso manages a Real-Money Portfolio for The Motley Fool and is an analyst on the Fool's Stock Advisor and Supernova premium service teams. You can connect with him on Twitter: @Tier1Investor. Joe is short December 2013 $65 puts on Starbucks.
The Motley Fool recommends and owns shares of Apple, MasterCard, Starbucks, Visa, and Whole Foods Market. 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.