20 Top High-Dividend Growth Stocks

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 (ED) or Integrys (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

Comments

[notsosmart:]

most very low yields. check out FRO.

2008 Sep 11 10:40 AM

[JET1C:]

Try NAT, ED, MMP, DOW, MTR. There are many better than the ones listed.

2008 Sep 11 11:06 AM

[Dividend Gr...:]

NTS and JET1C,

Thanks for your suggestions. While the tanker stocks do offer high current yields, their management is not committed to paying a consistent dividend check from quarter to quarter.

The 20 stocks above (with some exceptions) have been raising their payouts to shareholders for more than 25 consecutive years each. The dividend yields are above the market dividend rates. The growth in dividends in most of the stocks in my list above is above average; this will lead to most of them doubling their payment in 5-10 years.

What would you rather have a high dividend yield now which is erratic or a smaller dividend yield now which is growing rapidly?

I have found for myself that chasing high yields doesn't work for me. Thus I tend to stay away from tanker stocks and canadian trusts ( which doesn't mean they should be avoided).

2008 Sep 11 02:17 PM

[notsosmart:]

until a way is found to pave over the ocean the oil can only move by tanker.the dividends of FRO have paid for the stock.the ceo gets no pay.only dividends.i have no connection to the st. or the stock except as a happy shareholder.

2008 Sep 11 04:25 PM

[samadams:]

Great post I use the dividend growers in my IRA these are your classic Buffett stocks--many of these have doubled the payout in the last 5/6 years and are still raising the dividends double digits each year.. I use a few high yield for current income but like you said the payouts are not consistent. The Vanguard Div app index ETF is a one-stop shop--symbol VIG

2008 Sep 11 07:55 PM

[BlueOkie:]

I'm a big fan of dividends! Taxes are a consideration and in 2010, one may wish to look at non-paying dividend stocks for that reason. Whether to reinvest the dividend in the same stock via a DRIP or to pool all the dividends and invest in the best opportunity has pro's and cons' both ways. I prefer to use DRIPs where the company pays all or most of all the fees.

2008 Sep 12 08:25 AM

[notsosmart:]

drips are very good.specially in a bear market.

2008 Sep 12 10:15 AM

[49er:]

You can buy this index as an ETF, SDY. The current yield is 4.61% according to Yahoo, and it compares favorably with the S&P for this year.

2008 Sep 12 10:20 AM

[weiwentg:]

Re tanker stocks, I don't think they have the durable competitive advantages that many of the 20 listed stocks do.

Of the 20 that are listed, though, I don't think Fifth Third Bank is well positioned going forward. Wrigley is, but it's a) a little on the pricey side and b) is getting bought out. I like Bank of America a lot, but I'm not sure they're going to be able to consistently grow their dividend after buying Countrywide (although they seem to have contained the losses so far).

I would say that GE and Pfizer are my favorites on the list. GE will see loads of infrastructure demand from emerging economies. Pfizer's pipeline may be dry, but their boatload of cash and extensive sales network mean that they can partner with or buy any firm with an exciting drug on favorable terms.

2008 Sep 12 02:11 PM

[Stone Fox C...:]

Should focus on buybacks as well. Net Payouts (buyback + dividend) is better then just a divy. Stocks like CAT & DIS spend as much or more on buybacks which will be beneficial if Obama becomes president.

2008 Sep 12 02:28 PM

[WEBISKING:]

Mo Kft UST KO XOM DOW Pm bud and jnj have all treated me great

2008 Sep 12 07:50 PM

[Socialism c...:]

How about REITs, since they are incentivized to pay dividends by the fact that they do not pay corporate tax on money paid out as dividends. I am long NLY for the great dividend, and with rates looking to be held steady for another 6 to 12 months, NLY is going to have a great year ahead!

2008 Sep 13 06:07 PM

[berberick:]

I have to say I like ED and USB , both have weathered this market very well and are both very profitable . With yields north of 5% and stock prices that have been steadily going up over the years these 2 are winners . GE and PFE have been dead money for investors , they pay good divs. but stock price has been south on both these for a long time . FITB I would'nt touch with someone else's money !

2008 Sep 15 07:59 PM