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Summary

  • Dividend investors often focus on current yield and ignore an important aspect in a dividend portfolio, dividend per share growth.
  • Shareholder distributions were at a record high in Q1 2014, with over $249 billion paid out through dividends and share buybacks.
  • Q1 2014 marked the 13th consecutive quarter in which dividends per share increased by double digits.

Dividend investors know all too well the importance of high yields, but dividend per share growth is often overlooked for short-term current yield numbers. Investors who add stocks to their dividend portfolio that only maintain dividend payouts will actually see diminishing real returns as inflation numbers creep up. However, there are solid companies that over the past 5-10 years have made dividend payments a priority and as a result have increased dividends per shares by double digits on an annualized basis.

(click to enlarge) Source: FactSet Dividend Quarterly Q1'14

It's a great time to be a dividend investor. Q1'14 marked the 13th consecutive quarter in which dividends per share increased by double digits. DPS grew by 12.5% in the past quarter. $249.1 billion was paid to share holders through stock buybacks and dividends in Q1'14, which is a 10 year high. Prior to this record, the highest amount distributed was $242.1 billion back in Q3'07.

Somewhat surprisingly the information technology sector led all sectors in year-over-year DPS growth with +24.2%. This has been the 6th consecutive quarter IT has led in DPS growth, but this trend is expected to slow through the rest of 2014. Consumer discretionary is projected to lead sectors through 2014 with an average growth of 21.0%. S&P 500 companies paying dividends reached 425, or 85%, in Q1'14, which is the highest percentage since 1995. With such a strong dividend payment environment, picking the best dividend stocks in the S&P 500 is difficult because of the variety and number of stocks steadily increasing payouts. By looking at 3, 5 and 10 year DPS growth and EPS growth trends, investors can identify quality stocks as potential additions to their portfolio.

Highest Growth in Annual Dividend per Share (S&P 500) - 3 Year

Company

Sector

3 Yr Annual DPS Growth

3 Yr Annual EPS Growth

3 Yr Annualized Return

Yield (TTM)

International Paper (NYSE:IP)

Materials

46.2%

28.7%

26.4%

2.7%

KLA-Tencor Corp (NASDAQ:KLAC)

IT

33.1%

37.7%

25.6%

2.6%

Ensco (NYSE:ESV)

Energy

27.4%

16.4%

5.7%

4.2%

Darden Restaurants (NYSE:DRI)

Consumer Discretionary

26.0%

3.3%

5.9%

4.4%

Lockheed Martin (NYSE:LMT)

Industrials

21.9%

7.0%

32.5%

3.0%

Wisconsin Energy (NYSE:WEC)

Utilities

21.8%

9.2%

18.0%

3.2%

Target Corp (NYSE:TGT)

Consumer Discretionary

21.5%

-8.4%

10.7%

2.9%

Simon Property (NYSE:SPG)

Financials

21.4%

22.9%

19.2%

2.9%

Mattel (NASDAQ:MAT)

Consumer Discretionary

20.2%

11.5%

18.6%

3.7%

General Electric (NYSE:GE)

Industrials

19.8%

7.1%

16.9%

3.0%

Source: FactSet Dividend Quarterly Q1'14

Highest Growth in Annual Dividend per Share (S&P 500) - 5 Year

Company

Sector

5 Yr Annual DPS Growth

5 Yr Annual EPS Growth

5 Yr Annualized Return

Yield

Williams Companies (NYSE:WMB)

Energy

27.3%

-23.7%

39.0%

2.6%

Seagate Technology (NASDAQ:STX)

IT

27.2%

15.3%

47.7%

2.8%

CMS Energy Corp (NYSE:CMS)

Utilities

23.2%

6.2%

24.9%

3.4%

Darden Restaurants

Consumer Discretionary

22.7%

3.8%

12.1%

4.4%

KLA-Tencor

IT

22.4%

10.5%

25.8%

2.6%

Wisconsin Energy

Utilities

21.8%

10.6%

21.9%

3.2%

Lockheed Martin

Industrials

21.2%

3.0%

19.1%

3.0%

Harris Corp (NYSE:HRS)

IT

21.1%

-16.2%

24.3%

2.2%

Garmin (NASDAQ:GRMN)

Consumer Discretionary

19.1%

-2.2%

28.8%

2.9%

Lorillard (NYSE:LO)

Consumer Staples

19.1%

12.9%

29.5%

3.5%

Source: FactSet Dividend Quarterly Q1'14

Highest Growth in Annual Dividend per Share (S&P 500) - 10 Year

Company

Sector

10 Yr Annual DPS Growth

10 Yr Annual EPS Growth

10 Yr Annualized Return

Yield

Occidental Petroleum (NYSE:OXY)

Energy

17.3%

13.5%

18.0%

2.6%

ONEOK, Inc.

Energy

15.7%

1.7%

25.8%

2.4%

Wisconsin Energy

Utilities

13.7%

9.3%

14.5%

3.2%

Mattel

Consumer Discretionary

13.7%

7.8%

12.2%

3.7%

ConocoPhilips (NYSE:COP)

Energy

12.7%

8.2%

14.9%

3.2%

L Brands (NYSE:LB)

Consumer Discretionary

11.6%

8.4%

19.3%

2.1%

Public Storage (NYSE:PSA)

Financials

11.1%

14.4%

17.7%

3.1%

PACCAR (NASDAQ:PCAR)

Industrials

10.7%

9.5%

13.6%

2.7%

Raytheon Co (NYSE:RTN)

Industrials

10.6%

21.5%

13.5%

2.4%

Chevron (NYSE:CVX)

Energy

10.6%

12.0%

14.5%

3.1%

Source: FactSet Dividend Quarterly Q1'14

Looking at the charts and time frames above there are a wide variety of stocks in different sectors that stand out in the top 10. Surprisingly, many dividend stalwarts in the consumer staples sector, such as Procter & Gamble (NYSE:PG), Johnson & Johnson (NYSE:JNJ), Coca-cola (NYSE:KO), are absent. This is encouraging from a dividend income portfolio as it allows investors to further diversify their dividend allocations. Consumer discretionary stocks have been surprisingly strong over the past several quarters and are expected to lead all sectors in DPS through 2014. Based on data from FactSet, all sectors' DPS growth is expected to slow in 2015 with Financials expected to lead all other sectors in growth. FactSet suggests the primary catalyst for strong growth in financial DPS stems from the Fed's Comprehensive Capital Analysis and Review. Among the companies announcing growth in DPS after completing this year's test include, SunTrust Bank (NYSE:STI) (+100%), Morgan Stanley (NYSE:MS) (+100%), Regions Financial (NYSE:RF) (+66.7%), Discover Financial (NYSE:DFS) (+20%), Key Corp (NYSE:KEY) (+18.2%) and Wells Fargo (NASDAQ:WFM) (+16.7%). Additional tests in 2015 are expected to drive DPS growth in the sector with Citigroup (NYSE:C) and Bank of America (NYSE:BAC) among the companies being tested.

Conclusion

Dividend investors looking to increase income payments on a quarterly/annual basis should pay particular attention to companies with strong dividend per share growth. There are a variety of quality companies in different sectors that have increased DPS by double digits over 3, 5, and 10 year time frames. A high yield is great, but steadily seeing your dividends increase is just as important and shouldn't be ignored. Now is a great time to diversify your portfolio and focus on stocks with strong DPS growth.

Source: Recharge Your Dividend Portfolio By Focusing On Dividend Per Share Growth