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 more than 20% over the last year:
| Company | 1-Year Dividend Growth Rate |
|---|---|
| CME Group Inc (NASDAQ:CME) | 24.3% |
| Mattel, Inc. (NASDAQ:MAT) | 24.1% |
| Texas Roadhouse Inc (NASDAQ:TXRH) | 23.5% |
| WellPoint, Inc. (NYSE:WLP) | 23.3% |
| Harris Corporation (NYSE:HRS) | 21.3% |
Source: S&P Capital IQ.
CME Group Inc (NASDAQ:CME) operates the leading global exchange and clearinghouse for futures contracts that financial institutions, corporations, governments, and traders use to manage risk. CME Group Inc (NASDAQ:CME) currently has a four-star ranking on CAPS and offers investors a 2.5% yield.
Mattel, Inc. (NASDAQ:MAT) is the worldwide leader in the design, manufacture, and marketing of toys and family products, with a global distribution network that spans across more than 150 nations. Mattel, Inc. (NASDAQ:MAT)’s best-selling brands include Barbie, Hot Wheels, Monster High, American Girl, Thomas & Friends, and Fisher-Price. Fools have given the toymaker a four-star rating in CAPS, and its stock is yielding 3.5%.
