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Typically, I'd say following the crowd is a terrible strategy for an investor. But in this case, playing follow-the-leader is precisely what we should do to maximize our income.

You see, it's a well-known fact on Wall Street that activist investors, like Carl Icahn, have a positive influence on stock prices. When they arrive on the scene, stock prices go up. Plain and simple.

According to a report from S&P Capital IQ's Quantamental Research team, we can expect a stock targeted by activists to outperform the market by 3.4 percentage points within the first month - and nearly 15 points over the course of a year.

Now you understand why so many investors love to follow activists. It pays, handsomely. Of course, as income investors, capital appreciation isn't our primary focus. So those stats shouldn't immediately compel us to buy into the next stock targeted by activists.

But these stats should …

Boosting Those Payouts

During the recession, many companies reduced dividends - or just flat out stopped paying them - and hoarded the cash instead. So much so, in fact, that S&P 500 companies are now sitting on $940 billion in cash, according to S&P Senior Analyst, Howard Silverblatt. And that stockpile is becoming a prime target for activists.

Case in point: This year alone, 41 activist campaigns have demanded that companies return cash to shareholders via dividends, according to The Wall Street Journal. That's more than a 50% increase over the prior year.

Even the most famous activist investors are getting in on the action. I'm talking about billionaires, Carl Icahn and Daniel Loeb. It's working, too.

In October, CF Industries Holdings, Inc. (CF) - the second-largest nitrogen fertilizer manufacturer in the world - acquiesced to several months of hounding by Loeb (whose hedge fund, Third Point LLC, owns a 1.5% stake in CF).

In response to Loeb's demands, CF more than doubled its quarterly dividend to $1 per share, up from $0.40. As income investors, that's something we can appreciate.

Tack on a 15% increase to the stock price (after Third Point went public about its stake), and now you can see why following the leaders might not be such a bad idea after all. If you require more proof before being convinced, we've got it …

"Icahn" Do Anything

Even more recently than Loeb's involvement with CF, Icahn engaged in a heated battle with the board of directors and management at Transocean Ltd. (RIG).

And thanks to Icahn's maneuvering, management and the board agreed to cut costs - and, most importantly, boost the dividend by almost 35%. The activists win again! I'm convinced this won't be the last time, either.

With cash balances still running high, there's plenty of incentive for them to keep applying the pressure for dividend increases - as opposed to their usual strategy of shaking up the board and/or calling for a sale of the company.

Bottom line: This represents an unconventional strategy to meet our goal of finding investments with strong dividend growth potential. But it's delivering results, which is all that matters.

Accordingly, we'll be monitoring SEC filings and keeping our ears open to get an early bead on the next activist stock poised to boost its payout. Consider this your wake-up call to be prepared to act when we find one.

Source: Is This The Most Unconventional (And Profitable) Dividend Growth Strategy?