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With thousands of dividend stocks trading in the market, investors have a number of flavors and income angles to consider.
While many dividend investors are drawn to companies with higher yields - such as this list of the best high-dividend stocks - another type of dividend stock has great potential.
More specifically, companies with lower dividend yields but rapid rates of payout growth can provide excellent long-term income growth and capital appreciation potential for investors with longer time horizons.
Today, I want to point you toward 10 dividend stocks that have grown their payouts by at least 20% annually over the past five calendar years.
These businesses generally maintain low payout ratios, generate excellent cash flow and maintain conservative balance sheets, which means this isn't a totally backward-looking list - I expect continued double-digit rates of dividend growth out of these dividend growth stocks in the future.
In order of five-year dividend growth (all of these stocks sit above 20%), here are 10 high-quality dividend stocks that consistently push out large payout increases.
Dividend Stocks With 20%-Plus Payout Growth: Starbucks (SBUX)
Dividend Yield: 1.7%
Five-Year Average Dividend Growth: 23%
Last Dividend Hike: 25%
Starbucks Corporation (NASDAQ: SBUX ) is a leading retailer of specialty coffee with stores in more than 70 countries. The company engages in the purchase and sale of high-quality coffees, handcrafted coffee, tea and other beverages, and a variety of food items.
With more than four decades of experience selling coffee, Starbucks has become a leading, premium brand name in the industry. The company sells coffee primarily under its flagship Starbucks Coffee brand as well as Teavana, Tazo, Seattle's Best Coffee, Evolution Fresh, La Boulange and Ethos brand. SBUX is well-known for its prompt customer service and quality products.
Location is a key success driver for a successful coffee shop. Starbucks is therefore expanding its global store base, adding stores in the existing, developed markets of the world, and newer, higher growth markets such as China. In addition, SBUX focuses on high-traffic and high-visibility locations that ensure consistent visitors.
A vast global footprint, compelling products, premium pricing, a strong brand name and convenient real estate locations are the company's major competitive advantages.
Starbucks last boosted its payout by 25% in late 2016, just above its five-year average around 23%. With earnings per share expected to grow by double digits annually and the company's payout ratio below 50%, SBUX's dividend should continue its impressive growth over the coming years.
Dividend Stocks With 20%-Plus Payout Growth: Texas Instruments (TXN)
Source: VEX Robotics via Flickr
Dividend Yield: 2.5%
Five-Year Average Dividend Growth: 24%
Last Dividend Hike: 32%
Texas Instruments Incorporated (NASDAQ: TXN ) is a global semiconductor company that develops analog integrated circuits and embedded processors. Unlike players such as Nvidia Corporation (NASDAQ: AMZN ) and Advanced Micro Devices, Inc. (NASDAQ: AMD ), Texas Instruments has made its name on the simpler analog chips that serve as the backbone for even the most basic of gadgets.
TXN designs and makes semiconductors, which are subsequently sold to electronics designers and manufacturers worldwide. It owns and operates semiconductor manufacturing facilities (wafer fabrication and assembly/test facilities) in North America, Asia, Japan and Europe.
As one of the largest chip manufacturers in the world, Texas Instruments' economies of scale and technology investments have given it leading market share positions in analog and embedded processing.
Texas Instruments owns a broad portfolio of products that are essential for electronics and sells them to about 100,000 diverse customers. The company also caters to many diversified markets like industrial (33% of total revenue), personal electronics (26%), automotive (18%), and communications (13%).
TXN has paid uninterrupted dividends since 1962, and while its 24% annual average payout increase over the past five years is nice, what's really sweet is the 32% hike doled out in late 2016. That marked Texas Instruments' 13th consecutive year of payout increases.
With healthy earnings growth expected to continue and a supportive payout ratio near 50%, Texas Instruments will likely continue raising its quarterly distribution at a double-digit pace over the coming years.
Dividend Stocks With 20%-Plus Payout Growth: Home Depot (HD)
Source: Mike Mozart via Flickr (Modified)
Dividend Yield: 2.3%
Five-Year Average Dividend Growth: 25%
Last Dividend Hike: 29%
Home Depot Inc (NYSE: HD ) is the largest home improvement retailer in the U.S. and, alongside rival Lowe's Companies, Inc. (NYSE: LOW ), sells a wide variety of building materials, home improvement products and garden products. A typical store offers more than 1 million products and is interconnected with Home Depot's e-commerce business.
With almost four decades of home retail experience, Home Depot has long been evolving to suit its customers' needs. The company has built an impressive supply chain network, significantly improved the productivity and appearance of its stores, and invested heavily in e-commerce to meet consumers' shifting purchasing habits.
With a strong brand, convenient store locations, a unique in-store shopping experience, growing digital operations and an expanding home improvement market, HD appears to be well-positioned for continued growth .
Home Depot has paid dividends for the past 29 years, raising its payout by an impressive 25% annual pace over the past five. Management last hiked the dividend by 29% earlier this year, and investors can expect strong growth going forward thanks to Home Depot's safe payout ratio below 50% and outlook for continued earnings growth.
Dividend Stocks With 20%-Plus Payout Growth: Visa (V)
Source: Kārlis Dambrāns via Flickr
Dividend Yield: 0.7%
Five-Year Average Dividend Growth: 25%
Last Dividend Hike: 21%
Headquartered in Foster City, California, Visa Inc (NYSE: V ) is a global payments technology company providing electronic payment services to consumers, businesses and government entities in more than 200 countries. It's the world's largest retail payments network based on payments volume, number of transactions and cards in circulation. Visa also has 50% share of the global market outside of China.
Security of electronic payments is critical to maintaining trust and confidence among customers. The Visa brand is one of the most well-known and valuable brands in the world. It takes a lot of time to build a level of confidence for one's services, especially in financial matters, and is not easily replicated by new entrants.
Visa clearly has won over people's trust, evidenced by processed payments worth more than $8 trillion annually, more than 3 billion Visa cards in circulation worldwide, and over 160 currencies around the globe accepting Visa cards.
As commerce continues rapidly moving away from cash and towards digital payments, Visa is well-positioned to leverage strong growth from this trend. A strong brand name, extensive payment network and reliable technology should help Visa maintain its market position as the industry grows.
Speaking of growth, Visa's dividend growth has been outstanding. The company's payout has increased by nearly 25% per year over the past five calendar years, including a 21% hike late last year. With a payout ratio below 40% and earnings growth expected to remain strong, Visa investors can likely expect strong double-digit dividend growth to continue over the coming years.
Dividend Stocks With 20%-Plus Payout Growth: CVS Health (CVS)
Source: Mike Mozart via Flickr
Dividend Yield: 2.6%
Five-Year Average Dividend Growth: 25%
Last Dividend Hike: 18%
CVS Health Corp (NYSE: CVS ) is the largest integrated pharmacy chain in the U.S. with a vast network of more than 9,700 retail locations and over 1,100 walk-in healthcare clinics across all 50 states, Washington, D.C., Puerto Rico and Brazil.
In addition, the company runs a pharmacy care business serving more than 1 million patients per year, 35 specialty pharmacies and a Medicare Part D prescription drug plan.
Its pharmacy benefit management solutions segment accounts for almost 60% of total revenues, while its retail and long-term care segment generates the remaining 40%, primarily from the sale of prescription drugs.
CVS caters to the needs of a wide range of clients, including employers, insurance companies, unions and government employee groups. It provides an integrated offering across the entire spectrum of pharmacy care ranging from retail pharmacy to specialty pharmacy, long-term care pharmacy and infusion services.
Like many healthcare-related dividend stocks, CVS also should benefit from an aging population in the U.S. And the healthcare business is relatively immune from fluctuations in the economic cycle, which provides a solid foundation for reliable dividend growth.
In fact, CVS's dividend has increased for more than 10 consecutive years, compounding by 25% annually over the past half-decade. Management last boosted the dividend by 19% in early 2017, and the company's low free cash flow payout ratio near 20% suggests that dividend growth can remain strong over the coming years.
Dividend Stocks With 20%-Plus Payout Growth: Boeing (BA)
Dividend Yield: 2.7%
Five-Year Average Dividend Growth: 26%
Last Dividend Hike: 30%
Boeing Co (NYSE: BA ) has the highest yield of any stock on this list, potentially making it an interesting candidate for investors living off dividends in retirement . Boeing is world's largest aerospace company. It is a leading manufacturer of commercial jetliners and defense, space and security systems. It also provides aftermarket support services for aviation fleets worldwide.
Boeing is one of the two major manufacturers of 100-plus seat airplanes for the commercial airline industry globally, and one of the largest defense contractors in the U.S. This business is extremely capital-intensive, which is why there are only two major manufacturers of large commercial airplanes today. That's what Warren Buffett would consider a wide moat.
It costs billions of dollars to develop, build and deliver a new large commercial airplane, and it can take more than a decade of time to create a new model. Many times these massive projects run over budget and experience delays as well, and government regulations are costly to comply with, too.
While these challenges reduce Boeing's profitability, the also form a moat that provides the company with a healthy long-term backlog of projects.
As a result, Boeing has been able to pay uninterrupted dividends to shareholders for more than two decades. The firm has increased its dividend by 26% per year over the past five years and increased its payout by 30% earlier this year.
Looking ahead, double-digit dividend growth should continue. Boeing's free cash flow payout ratio sits below 40%, the company's balance sheet is very healthy, and its backlog is massive.
Dividend Stocks With 20%-Plus Payout Growth: Oracle (ORCL)
Dividend Yield: 1.5%
Five-Year Average Dividend Growth: 26%
Last Dividend Hike: 27%
Oracle Corporation (NYSE: ORCL ) is a leading provider of software products and services related to corporate information technology. In fact, it has also become the world's fastest growing large-scale cloud computing company.
The company offers a fully integrated suite of cloud applications, platform services, and engineered systems to more than 420,000 customers in over 145 countries. By geography, Americas is the largest revenues segment accounting for 56% of total revenues followed by EMEA (28%) and Asia Pacific (16%) regions.
The demand for cloud-based IT deployment models has been increasing sharply over the recent years, and Oracle should benefit from this trend.
Leading companies such as AT&T Inc. (NYSE: T ) and Bank of America Corp (NYSE: BAC ) have recently announced agreements to use Oracle's cloud-based solutions. As the company continues shifting more of its revenue base away from on-premise software and into the cloud with software-as-a-service, Oracle should become an even more predictable and profitable business over time.
However, it entails a lot of technical expertise to develop software products and gain clients' trust for providing mission critical data systems. Switching costs are high, and all of these attributes have made it difficult for new entrants to attack Oracle's strong market share.
The dividend on ORCL stock has ballooned by 26% annually for the past half-decade. Management boosted the company's dividend by 27% earlier this year, and the outlook for growth remains very strong. Oracle's low payout ratio near 30% and very healthy balance sheet - with more cash than debt - will ensure continued hikes like that.
Dividend Stocks With 20%-Plus Payout Growth: UnitedHealth (UNH)
Source: bradleypjohnson via Flickr
Dividend Yield: 1.6%
Five-Year Average Dividend Growth: 29%
Last Dividend Hike: 20%
UnitedHealth Group Inc (NYSE: UNH ) is a diversified health and well-being company providing health care benefits to an array of customers and markets in all 50 states and more than 125 other countries. It ranks among the top five medical and insurance companies in the U.S.
The company operates through two business platforms: UnitedHealthcare (health care coverage and benefits services) and Optum (information and technology-enabled health services).
Most of UnitedHealth's product revenues are derived from premiums which are typically charged at a fixed rate to individuals. Most of its services revenues are derived from service fee contracts, where the company receives a fixed monthly fee per employee. This provides good visibility to the company's cash flows.
The company has strong, long-standing local market relationships and has also developed extensive expertise in distinct market segments, which serves as a competitive advantage. UNH's business is also subject to various regulations, thus making entry difficult for the newcomers.
Clinical expertise, advanced technology, an extensive product portfolio, and large scale are the company's core competencies that have supported its impressive dividend growth.
UNH last boosted its payout by 20% earlier in 2017, keeping up an average hike of 29% annually over the past five years. A low payout ratio below 40% provides potential for healthy double-digit dividend increases going forward.
Dividend Stocks With 20%-Plus Payout Growth: MasterCard (MA)
Source: Håkan Dahlström via Flickr (Modified)
Dividend Yield: 0.7%
Five-Year Average Dividend Growth: 49%
Last Dividend Hike: 16%
MasterCard Inc (NYSE: MA ), like Visa, is a global payments technology company. It facilitates electronic funds payments throughout the world, mostly through MasterCard-branded credit and debit cards.
The company's revenues can be classified into five categories - domestic assessment fees, cross-border volume fees, transaction processing fees, other revenues and rebates and incentives.
MasterCard serves a wide array of consumers, financial institutions, merchants, governments and businesses worldwide. It owns well-known brands, including MasterCard, Maestro and Cirrus. MA has a large geographical presence in over 210 countries and is accepted by more than 150 currencies.
Mastercard is expanding its global digital payments ecosystem by launching new products and solutions to ensure safe and secure transactions, building trust and confidence with consumers and businesses over time.
An efficient and fast payments processing network, leading products, globally recognized and trusted brands and an increasing client base are MasterCard's strong competitive advantages that have resulted in a fast-growing dividend.
In fact, MasterCard's dividend has grown by 49% annually over the past five years, and the company rewarded shareholders with another 16% boost in early 2017. MasterCard's low payout ratio near 20% and strong earnings growth profile suggest that the company's payout can continue increasing at a fast pace going forward.
Dividend Stocks With 20%-Plus Payout Growth: Southwest Airlines (LUV)
Source: Jerry Landers via Flickr (Modified)
Dividend Yield: 0.8%
Five-Year Average Dividend Growth: 66%
Last Dividend Hike: 25%
The last entry in our list of income-hiking dividend stocks is Southwest Airlines Co (NYSE: LUV ), a leading airline company in the U.S. and is also the largest low cost airline in the world. The company serves more than 100 million customers, providing service to more than 100 destinations across 40 states, the District of Columbia, Puerto Rico and eight other countries.
Southwest's success can be traced to its focus on providing flyers with great service at a low price, an unusual combination for an airline. However, the company's efforts have been recognized by customers and publications alike, with Southwest being named to Fortune's list of World's Most Admired Companies for the 23rd consecutive year.
Southwest focuses more on direct nonstop routes, owns cost-efficient airplanes and provides point-to-point services. This results not only in low fares but also in better-timed flights.
While the airline business is a notoriously difficult market in which companies frequently enter down cycles, LUV has a solid performance history with 44 consecutive years of profitability. This shows the company's resilience and operational excellence driven by its low-cost structure.
Southwest Airlines is the only domestic airline company with a decades-long history of paying uninterrupted dividends to its shareholders. LUV has raised its dividend by an eye-popping 66% on average over the past five years - from just 1 cent per share in 2012 to 12.5 cents quarterly at the moment. The last dividend increase was "just" 25%, and shareholders can look forward to more years of double-digit payout raises thanks to Southwest's low payout ratio below 20%.
As of this writing, Brian Bollinger was long BA and ORCL.
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