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 past year.
1-Year Dividend Growth Rate
Calumet Specialty Products Partners
Source: S&P Capital IQ.
Qualcomm designs, develops, manufactures, and markets digital telecommunications products and services. With several wireless patents and massive scale, Qualcomm is positioned to profit from the surging global growth of mobile devices. CAPS participants have taken notice and have awarded Qualcomm with the highest five-star rating. Its shares are yielding 2.1%.
Walgreen is your typical neighborhood drugstore, selling prescription and over-the-counter drugs and an array of other merchandise. With more than 8,000 drugstores spread across the U.S., Walgreen has the scale and brand recognition to compete in a tough industry. Fools like its chances and have given Walgreen a four-star rating in CAPS. Its stock is yielding 2.3%.
BB&T provides various banking services for retail and commercial clients. These include community and residential mortgage banking, along with dealer financing, insurance, asset management, and a host of other financial services. BB&T currently sports a four-star rating in CAPS and is paying out a 2.7% dividend.
Teva is a global pharmaceutical company that develops, produces, and markets generic drugs covering most major treatment categories. Although shares have underperformed the market in the last year, Fools think better times lie ahead; Teva has a top five-star CAPS rating and offers investors a 3.4% dividend.
Calumet Specialty Products Partners is a leading independent producer of specialty hydrocarbon products, with product lines that include naphthenic and paraffinic oils, aliphatic solvents, synthetic lubricants, asphalt, fuels, white mineral oils, waxes, petrolatums and hydrocarbon gels. The MLP's unit price recently took a hit after weak quarterly earnings in its most recent quarter caused investors to question the sustainability of its hefty 10% yield. But some believe the sell-off is a buying opportunity, and that Calumet Specialty Products Partners will probably continue to grow its payouts, albeit at a lower rate in the future. Calumet has a four-star CAPS rating.
The Foolish bottom line
Had you invested in these companies a year ago, you would have enjoyed total dividend increases ranging from 21% to 23%. That level of growth would provide a substantial boost to just about any investor's dividend income. But more important to investors today is to identify the companies that will grow their dividends substantially in the years ahead. If you're interested in hearing about some excellent companies that are likely to boost their dividends from this point forward, I'd like to offer you a brand-new 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.
The article 5 Stocks Growing Their Dividends by 20% Per Year originally appeared on Fool.com.
Joe Tenebrusomanages a Real-Money Portfoliofor The Motley Fool and is an analyst on the Fool's Stock AdvisorandSupernovapremium service teams. You can connect with him on Twitter: @Tier1Investor. Joe has no position in any stocks mentioned. The Motley Fool owns shares of Qualcomm. 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.
Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.