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 15% or more over the last year:

Company

1-Year Dividend Growth Rate

ExxonMobil

18.2%

Union Pacific

17.4%

Pebblebrook Hotel Trust

16.7%

Retail Opportunity Investments

15.7%

Microsoft

15%


Source: S&P Capital IQ

ExxonMobil is one of the largest integrated oil and gas companies in the world. It explores, produces, transports, and sells crude oil and natural gas. It also manufactures and markets commodity petrochemicals. ExxonMobil currently has a four-star ranking on CAPS, and offers investors a 2.9% yield.

Union Pacific is a leading North American rail freight carrier offering transportation services for petrochemicals and fertilizers, as well as agricultural, automotive, energy, and industrial products over nearly 32,000 miles of track. Union Pacific currently sports a four-star rating in CAPS, and is yielding 2%.

Pebblebrook Hotel is a real estate investment trust that acquires and invests primarily in upscale U.S. hotel properties. Its holdings include the Doubletree Bethesda Hotel and Executive Meeting Center; Sir Francis Drake Hotel, and InterContinental Buckhead Hotel. CAPS participants have awarded Pebblebrook Hotel with the highest five-star rating, and the company is paying out a 2.4% dividend.

Retail Opportunity Investments is also a REIT, but it focuses on acquiring and revitalizing shopping centers in the eastern and western regions of the United States. With proven CEO Stuart Tanz at the helm, and a hefty 4.7% yield, Fools think ROIC deserves a top five-star CAPS rating.

Love it or hate it, Microsoft is a powerful force in the world of technology. Its ubiquitous Windows software is still the market leader by a wide margin when it comes to PC operating systems, and its Office software remains a key productivity application for many businesses around the world. Fools have given Microsoft a three-star rating in CAPS, and its stock is yielding 2.9%.

The Foolish Bottom Line
Had you invested in these companies a year ago, you would have enjoyed total dividend increases ranging from 15% to 18%. 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 Motley Fool 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 15% Per Year 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 Twitter @Tier1Investor. Joe  has no position in any stocks mentioned. The Motley Fool recommends Pebblebrook Hotel Trust and Retail Opportunity Investments. The Motley Fool owns shares of Microsoft, Pebblebrook Hotel Trust, and Retail Opportunity Investments. 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 Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.


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