According to a historic study conducted by Ned Davis Research, companies that either initiated or increased their dividend payout policies between 1972 and 2007 outperformed their S&P 500 counterparts with stagnant dividends by 2.2%, annually. Compounded over a 35-year span, this marginal annual contribution would increase the total portfolio return by 114%.

TUTORIAL: Managing Risk And Diversification

Not Just a Dividend
Despite the fact that dividends provide regular income to shareholders, and thus are commonly held by pension funds and other institutional investors, dividend hikes also reflect management's belief in the growing fundamentals of the company. A dividend increase often reflects improved cash-flow conditions of the firm. Therefore, looking for stable companies with a long history of dividend increases allows investors to gauge management's long-term expectations of the firm.

The following seven companies (from a wide range of industries) support strong dividend yields and have been increasing their payouts. In fact, all of the corporations mentioned below have seen their payouts grow by at least 15% over the past five years. These stocks should not only be seen as income producing instruments, but have the potential to provide long-term portfolio appreciation.

Diversified Dividend Growers

Company Yield (%) Industry
AmBev (NYSE:ABV) 5.40 Beverages - Brewer
Century Link (NYSE:CTL) 6.95 Telecom Services
Fidelity National Financial (NYSE:FNF) 3.66 Insurance - Specialty
McDonald\'s (NYSE:MCD) 3.06 Restaurants
Nucor (NYSE:NUE) 3.10 Steel
Paychex (NASDAQ:PAYX) 3.96 Staffing & Outsourcing
Unilever PLC (NYSE:UL) 3.70 Packaged Foods

Quick Company Overview
AmBev is currently Latin America's largest brewer, and the fourth-largest beer producer world wide. AmBev operates with a return on equity of 29.8%, easily outpacing its competitors in its industry.

Century Link provides high-speed internet and phone line access services. Recently, Century Link merged with Qwest. The company trades at a low PE ratio of 13.3.

Fidelity National Financial is a slow growth, mid-value insurance underwriter which is slowly recovering from the credit crisis. Fidelity National Financial is trading at below book value.

With over 32,700 locations in 117 countries, McDonald's is one of the most recognized brands in the world. The company has been growing earnings recently at the rate of a start-up.

Nucor is the largest scrap metal processor in the U.S. The company has been steadily growing its focus on exports in order to diversify its business portfolio.

Paychex has been extremely successful in providing payroll outsourcing services to small and medium sized businesses. Due to the minimal capital requirements, Paychex rewards investors with a 35.7% return on equity.

Unilver sells everyday-consumer products in over 170 countries. The company currently trades at only 14.8 times earnings, despite its high margins.

Bottom Line
The key to selecting dividend stocks is not only to choose those that offer the highest yields, but to analyze the fundamentals of the company as well. Long-term dividend growth is another essential component to developing the full story. (So you've finally decided to start investing. But what should you put in your portfolio? Find out here. Check out How To Pick A Stock.)

Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!

Related Articles
  1. Stock Analysis

    Allstate: How Being Boring Earns it Billions (ALL)

    A summary of what Allstate Insurance sells and whom it sells it to including recent mergers and acquisitions that have helped boost its bottom line.
  2. Options & Futures

    Cyclical Versus Non-Cyclical Stocks

    Investing during an economic downturn simply means changing your focus. Discover the benefits of defensive stocks.
  3. Investing Basics

    How to Deduct Your Stock Losses

    Held onto a stock for too long? Selling at a loss is never ideal, but it is possible to minimize the damage. Here's how.
  4. Economics

    Is Wall Street Living in Denial?

    Will remaining calm and staying long present significant risks to your investment health?
  5. Stock Analysis

    When Will Dick's Sporting Goods Bounce Back? (DKS)

    Is DKS a bargain here?
  6. Investing News

    How AT&T Evolved into a Mobile Phone Giant

    A third of Americans use an AT&T mobile phone. How did it evolve from a state-sponsored monopoly, though antitrust and a technological revolution?
  7. Stock Analysis

    Home Depot: Can its Shares Continue Climbing?

    Home Depot has outperformed the market by a wide margin in the last 12 months. Is this sustainable?
  8. Stock Analysis

    Yelp: Can it Regain its Losses in 2016? (YELP)

    Yelp investors have had reason to be happy recently. Will the good spirits last?
  9. Stock Analysis

    Is Walmart's Rally Sustainable? (WMT)

    Walmart is enjoying a short-term rally. Is it sustainable? Is Amazon still a better bet?
  10. Stock Analysis

    GoPro's Stock: Can it Fall Much Further? (GPRO)

    As a company that primarily sells discretionary products, GoPro and its potential falls right in line with consumer trends. Is that good or bad?
  1. How can insurance companies find out about DUIs and DWIs?

    An insurance company can find out about driving under the influence (DUI) or driving while intoxicated (DWI) charges against ... Read Full Answer >>
  2. How do dividends affect retained earnings?

    When a company issues a cash dividend to its shareholders, the retained earnings listed on the balance sheet are reduced ... Read Full Answer >>
  3. What is the difference between called-up share capital and paid-up share capital?

    The difference between called-up share capital and paid-up share capital is investors have already paid in full for paid-up ... Read Full Answer >>
  4. Why would a corporation issue convertible bonds?

    A convertible bond represents a hybrid security that has bond and equity features; this type of bond allows the conversion ... Read Full Answer >>
  5. How does additional paid in capital affect retained earnings?

    Both additional paid-in capital and retained earnings are entries under the shareholders' equity section of a company's balance ... Read Full Answer >>
  6. What types of capital are not considered share capital?

    The money a business uses to fund operations or growth is called capital, and there are a number of capital sources available. ... Read Full Answer >>

You May Also Like

Trading Center