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?
With that in mind, here are five stocks that have grown their dividends by 10% or more over the past year:
| Company | 1-Year Dividend Growth Rate |
|---|---|
| Caterpillar Inc. (NYSE:CAT) | 13.7% |
| General Electric Company (NYSE:GE) | 12.1% |
| McDonald’s Corporation (NYSE:MCD) | 11.1% |
| Devon Energy Corp (NYSE:DVN) | 10.8% |
| T. Rowe Price Group, Inc. (NASDAQ:TROW) | 10.8% |
Source: S&P Capital IQ.
Caterpillar Inc. (NYSE:CAT) is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. Caterpillar Inc. (NYSE:CAT) currently has a four-star ranking on CAPS and offers investors a 2.9% yield.
General Electric Company (NYSE:GE) is a massive conglomerate offering everything from light bulbs to power plants, jet engines to water processing, financial services to oil and gas equipment, and a host of other products and services. General Electric Company (NYSE:GE) currently sports a four-star rating in CAPS and is yielding 3.2%.
With its universally recognized Golden Arches, McDonald’s Corporation (NYSE:MCD) franchises and operates more than 34,000 fast-food restaurants in 119 countries. Fools have given the McEmpire a four-star rating in CAPS, and its stock is yielding 3.2%.
Devon Energy Corp (NYSE:DVN) is an independent energy company focused primarily on the exploration, development, and production of oil, natural gas, and natural gas liquids. This Fool favorite has a top five-star CAPS rating and offers investors a growing 1.5% dividend.
T. Rowe Price Group, Inc. (NASDAQ:TROW) is a respected asset-management firm that offers a host of mutual funds and related products to individual and institutional investors, retirement plans, and financial intermediaries. CAPS participants have given T. Rowe Price Group, Inc. (NASDAQ:TROW) a four-star rating, and the company is paying out a 2.1% dividend yield.
The article 5 Stocks Growing Their Dividends by 10% Per Year originally appeared on Fool.com is written by Joe Tenebruso.
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 has no position in any stocks mentioned. The Motley Fool recommends McDonald’s and owns shares of Devon Energy, General Electric, and McDonald’s.
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