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When it comes to income replacement, chasing a stock's high yield can often be a misleading tactic in the game for sustainability. What pays you abundantly today may not serve to meet your needs for tomorrow when you're relying on the expected income. Consistent dividend growth, on the other hand, is by far the more ideal strategy in securing an income source with a high return. A quick look at the following two fundamentally sound companies shows the stark difference between the two strategies.

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The Dow Chemical Company (DOW) has historically paid an above average dividend. A look at the company's yield a decade ago in 2002, and we'd have seen that the company was still paying a rough 5.05% annual yield based on the stock price of $26.53. On the other hand, Exxon Mobil Corporation (XOM) paid a more moderate dividend with an annual yield of 2.67% based on the stock price of $34.61. Yet as the above graphics show, Exxon Mobil continued to steadily grow its dividend rate year-over-year whereas Dow Chemical did not.

However, the end result for someone who held on to equal positions in both companies shows a clear winner. Based on the initial holding in 2002, the position in Exxon Mobil would now sport an annual yield of 6.59% due to the growing dividend rate. Yet when we take a look at Dow Chemical, an equivalent position from 2002 would now be yielding a rough 3.70% annual yield due to its inconsistent dividend rate. As yield seekers are typically most concerned about a steady income flow, it's clear that a strong dividend growth company is the long-term winner in income replacement.

Taking a look at principal growth is also an important factor to consider. However, the effect can often be illusory to those with the goal of replacing income. This is the case as the income dependent aren't necessarily willing to get in and out of their positions at a given time. Yet in the above example, Exxon Mobil's stock price rose 157.5% over the last decade while Dow Chemical's stock only grew 15.27%. While this also illustrates a clear winner, the fact remains that the strength of Exxon Mobil's yield appears dwarfed in the present as it hides behind a consistently growing share price. As of today, Exxon Mobil still currently yields a mere 2.61% annual yield while Dow Chemical offers a 4.36% yield based on share prices of $87.21 and $29.36 respectively.

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Investors looking to find growing dividends may also wish to consider the following three companies. Each of these names have consistently raised their dividends annually over the last 10 consecutive years. Such predictable distribution growth is far from common and quite often only typical of the most firmly established businesses. Nevertheless, it is always advisable to pursue additional due diligence into each company to confirm that their risks are suitable to the investor's own level of tolerance.

Company NameCurrent Yield %Payout RatioBeen Raising Dividend Since...
AFLAC (AFL)2.82%22%1983
Caterpillar (CAT)2.45%19%1994
United Technologies (UTX)2.82%35%1994

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Source: Replace Your Income With These Growing Dividend Companies