20 Top High-Dividend Growth Stocks

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Includes: ADP, AFL, BAC, BDX, ED, FITB, GE, JNJ, LOW, MCD, MTB, NUE, PFE, PGR, SHW, SIAL, STT, TEG, TGT, USB, VFC, WMT, WWY
by: Dividend Growth Investor

One of my favorite stock lists that includes quality dividend stocks is the Dividend Aristocrats list, maintained by Standard & Poors. In order for a company to qualify for membership in this elite group, it has to have increased its dividend payments to shareholders for at least 25 consecutive years.

The typical dividend aristocrat is a mature company that has weathered the storms of many boom and bust cycles while continuing to increase dividend payments to shareholders. These companies as well as the dividend champions are the cornerstone to my dividend growth strategy. Although the list as a whole yields a little bit better than the overall market represented by the S&P 500, there are some hidden gems which have consistently achieved an above average dividend growth rate.

A company which has a 12% dividend growth would double its dividend payment in 6 years. Thus if this stock has a dividend yield of 2% right now, 6 years from now the yield on cost would be 4%. If the dividend payment keeps growing at the same growth rate, the yield on cost would be close to 12% in twelve years after the initial investment. In order to find such stocks, I researched the dividend aristocrats and selected the 20 stocks with the highest dividend growth for the past 10 years. (Period ending in 2007). You could also open the spreadsheet from here.


 

Just because the dividend growth rate for a particular stock is not in the double digits does not automatically mean that the stock is not a buy and vice versa. It all depends on your investing goals and experience. If you are a retiree looking for another source of income then the higher yielding slower growing dividend stocks like Consolidated Edison (NYSE:ED) or Integrys (NYSE:TEG) would constitute the majority of your portfolio. However if you are not going to tap your dividend income for one or two decades, then the lower yielding high dividend growth stocks will have a higher weight in your income portfolio.

The only thing that is constant, of course, is change, thus a company which is rapidly growing its dividends might not grow them at such a fast rate in the future or might even consider cutting the payments to shareholders and vice versa. Thus, a successful dividend investor would construct a portfolio that is a blend of higher yielding and lower yielding dividend stocks, growing their payments at varying rates.

Disclosure: Long MCD, WMT, MTB ,ADP, JNJ, SHW, ED