Lately, investors have been scooping up dividend stocks like there's no tomorrow. Fortunately for those starving for income due to low rates on interest-paying alternatives, more companies are boosting their payouts to shareholders -- and that trend doesn't look likely to end anytime soon.
But despite the good news from a wide variety of stocks, you still shouldn't settle for just any dividend stocks. Any company can manage to deliver a one-time dividend increase, but only stocks that build a track record of hefty hikes deserves your full attention.
Later in this article, I'll drill down on four stocks that are outpacing the market's dividend increases. But first, let's take a look at exactly how good a job the overall stock market is doing in showing shareholders the money.
For those looking for growing dividends, prospects look good for 2012. According to S&P senior index analyst Howard Silverblatt, the total value of dividend payments made by S&P 500 index component companies should jump by about 15% for the year.
You can point to several fundamental factors supporting higher dividends. Many companies have reversed long-standing records of not paying dividends to start making payouts, with the most notable perhaps being Apple (NAS: AAPL) joining the dividend bandwagon earlier this month, finally letting loose its clamps on part of a cash hoard of close to $100 billion. Yet even as dividend payments have risen, corporate earnings have grown at a faster pace, leaving S&P 500 companies now paying an average of 30% of their earnings in dividends, well below the roughly half that they typically pay.
A 15% jump in dividends may sound good. But some stocks have managed to do better. In looking through hundreds of stocks to find ones that could boast better than 15% growth in dividends both in the past year as well as annually since 2007, I found a number of familiar names.
(NYS: WMT) , 21% dividend increase in the past year, 17% average annual dividend increase since 2007:
Given the difficulties that the U.S. retail giant has gone through in recent years, it may be surprising to find the company on the list. But Wal-Mart has a long history of dividend growth through good times and bad, and even during its string of falling same-store sales and increased competition from deep-discounters as well as rival big-box retailers, Wal-Mart managed to raise its payouts. With a 9% increase just having come this quarter, don't expect more soon, but over time, Wal-Mart should reward income-seeking shareholders.
(NYS: BHP) , 21% one-year jump, 23% average since 2007:
BHP is just one of many mining companies that have discovered the value of dividends. With gold, copper, and other metals still trading at very high levels compared to 10 years ago, BHP and its peers suddenly have huge amounts of cash flow -- and BHP has boosted its payout 16 times since late 2002. Even allowing for the increased capital investment that high metals prices make feasible, dividend investors can expect the good times to keep rolling as long as commodities markets don't crash.
(NYS: UNP) , 47% one-year jump, 26% average since 2007:
On a related note, when commodities are valuable, it pays to move them from place to place. That's exactly what Union Pacific has been doing, taking advantage of high energy costs to trumpet its fuel-efficiency advantage over trucking companies and other players in the transportation sector.
(NYS: ACN) , 64% one-year jump, 31% average since 2007:
Most of Accenture's dividend pop came this year, with a sizable 50% increase coming last October. Yet for a company that didn't even pay a dividend until 2005, Accenture has done a good job getting that payout up to meaningful levels. With success in its main consulting business, there's no reason to think that those payouts couldn't keep growing in the future.
It's good news that the market overall is rediscovering the value of dividends. But by focusing on the companies that are most generous to their shareholders, you'll improve your chances of not missing out on this lucrative trend.
We've also got some other ideas for dividend investors, and you can find them in this free Motley Fool special report: "Secure Your Future With 9 Rock-Solid Dividend Stocks." Your copy is free, but it won't be available forever, so grab your free report today.
At the time this article was published Fool contributor Dan Caplinger always likes money in his pocket. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Wal-Mart and Apple. Motley Fool newsletter services have recommended buying shares of Wal-Mart, Accenture, and Apple, as well as creating a bull call spread position in Apple and a diagonal call position in Wal-Mart. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Fool's disclosure policy won't leave you hanging.
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