Dividend investors would be wise to focus not just on a stock’s current yield, but also on the long-term growth potential of its dividends. That’s because strong businesses that consistently raise their dividend payouts reward shareholders with a steadily rising income stream that essentially equates to a raise every year. And, well, who doesn’t like a raise?
But there are other reasons to 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?
| Company | 1-Year Dividend Growth Rate |
|---|---|
| Becton, Dickinson and Co. (NYSE:BDX) | 9.9% |
| Diageo plc (ADR) (NYSE:DEO) | 9% |
| Spectra Energy Corp. (NYSE:SE) | 8.6% |
| Gentex Corporation (NASDAQ:GNTX) | 8% |
| Medtronic, Inc. (NYSE:MDT) | 7.3% |
Source: S&P Capital IQ.
Becton, Dickinson and Co. (NYSE:BDX): is a medical technology company that manufactures and sells a broad range of medical supplies, devices, laboratory equipment, and diagnostic products to health care institutions, life science researchers, clinical laboratories, and the general public. Becton, Dickinson has a top five-star ranking on CAPS and offers investors a 2% yield.
Diageo plc (ADR) (NYSE:DEO) is the world’s leading premium-drinks business, with a valuable collection of beverage alcohol brands across spirits, beer, and wine. These brands include Johnnie Walker, Crown Royal, Smirnoff, Ciroc, Ketel One, Baileys, Captain Morgan, Tanqueray, and Guinness. CAPS participants have awarded Diageo with a five-star rating, and the company is paying out a 2.3% dividend.
Spectra Energy Corp. (NYSE:SE) owns and operates a portfolio of natural gas-related energy assets and is one of North America’s leading pipeline and midstream companies. Spectra’s natural gas operations include approximately 19,000 miles of transmission pipeline and 305 billion cubic feet of storage capacity in the U.S. and Canada, which help fuel the four-star CAPS-rated company’s growing 3.7% yield.
Gentex Corporation (NASDAQ:GNTX) is a global, high technology electronics company that is vertically integrated in highly automated electronics, CMOS camera development and manufacturing, vacuum coatings, and glass bending and fabrication for the automotive, aerospace, and fire-protection industries. Gentex sports a five-star rating in CAPS and is yielding 2.3%.
Medtronic, Inc. (NYSE:MDT) is the world’s largest medical-technology company, with a global reach that extends to more than 140 countries. Medtronic’s therapies are targeted around its stated mission of “alleviating pain, restoring health, and extending life.” Last year, more than 9 million people benefited from Medtronic’s medical therapies, which treat cardiac and vascular diseases, diabetes, and neurological and musculoskeletal conditions. This Fool favorite has a top five-star CAPS rating and offers investors a growing 2.1% dividend.
The article 5 Rock-Solid Stocks Growing Their Dividends Well Above Inflation originally appeared on Fool.com.
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 TwitterL @Tier1Investor. Joe has no position in any stocks mentioned. The Motley Fool recommends Becton, Dickinson; Diageo; Gentex; and Spectra Energy and owns shares of Gentex and Medtronic. .
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