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 15% over the last year:

Company

1-Year Dividend Growth Rate

Occidental Petroleum

18%

Kinder Morgan

18%

Sherwin-Williams

17.9%

Freeport-McMoRan Copper & Gold

17.6%

Xerox

17.6%


Source: S&P Capital IQ.

Occidental Petroleum is an international oil and gas exploration and production company that specializes in applying advanced technology to access hard-to-recover reserves and boost production from mature oil and natural gas fields. That, in turn, has allowed Occidental Petroleum to boost its dividend -- currently 2.9% -- and earn a four-star ranking on CAPS.

Kinder Morgan is the largest midstream energy company in North America, with approximately 80,000 miles of pipelines that transport natural gas, refined petroleum products, crude oil, carbon dioxide, and other products. Most of Kinder Morgan's businesses are able to avoid commodity price risk by operating like giant toll roads that receive a fee for their transportation services. That consistent cash flow is then passed on to shareholders in the form of a 4.3% dividend, helping Kinder Morgan earn a top-tier five-star rating in CAPS.

As a trusted brand for paint and related products for both retail and professional customers, Sherwin-Williams has benefited tremendously from the recovery in the housing market, with its shares more than doubling in the past two years. But most CAPS participants think Sherwin-Williams will continue to outperform the market, and its shares are currently yielding 1.2%.

Freeport-McMoRan engages in the exploration, mining, and production of copper, gold, molybdenum, cobalt, silver, and other metals. Freeport-McMoRan also owns a valuable portfolio of oil and gas assets including oil production facilities in California, Texas, and the Gulf of Mexico, along with large onshore resources in the Haynesville natural gas trend in Louisiana. Fools have given FCX a four-star rating in CAPS and its stock is yielding a sizable 4.1%.

No longer just a copier company, Xerox now offers a host of business outsourcing services including human resources, finance and accounting, customer care, and transactional services, along with a full lineup of document management systems. This diversified array of services allows Xerox to pay out a growing 2.4% dividend. CAPS players have taken notice and have awarded the company with a four-star rating.

The Foolish bottom line
Had you invested in these companies a year ago, you would have enjoyed total dividend increases of more than 17%. 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 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 Kinder Morgan and Sherwin-Williams and owns shares of Freeport-McMoRan Copper & Gold and Kinder Morgan. 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.


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