Markets

This Group Of Stocks Is Beating The S&P By 57% In 2016

Bill Gates walks up to you in a bar. He sits down and says he wants you to make an important financial decision.

"Would you rather accept a check for one million dollars right now, or a penny today that will double in value every day for the next 30 days?"

Without pulling out a calculator, what would you do?

According to my own personal survey, most people would take the million dollars.

However, this option leaves quite a bit of money on the table. By quite a bit I mean about $4 million .

After 30 days, that one penny doubling every day would be worth $5 million.

This financial brain teaser is the reason the dividend aristocrats are enriching so many investors.

Let me explain.

The dividend aristocrats is the small group of S&P 500 companies that have raised their dividend every year for 20 years.

In 2016, just 53 of the S&P 500 qualified for this elite distinction -- a little more than 10% of the index.

On the surface, most investors go for the higher yield, just like the lure of taking the $1 million from Bill Gates. I know because as an investment advisor, my clients frequently ask about high-yield stocks but almost never ask me about stocks with the fastest growing dividends.

That's like going to dinner and only looking at one side of the menu.

Dividend yield will always be important. But factoring in strong dividend growth rates as well can give your portfolio a huge leg up. And I have the data to prove it.

With interest rates at a record low, investors are starving for yield.

That has triggered a huge inflow into dividend stocks -- particularly dividend stocks with high growth rates.

This is the reason the dividend aristocrats are crushing the S&P 500 in 2016.

In 2016, while the S&P 500 has returned 7%, the ProShares S&P 500 Aristocrats ETF (NYSE: NOBL ) an ETF designed to mimic the dividend aristocrats, has returned 11%, more than a 57% premium. Take a look below.

Here is a link to the full list of dividend aristocrats .

From this list, I wanted to uncover the best of the best -- dividend aristocrats with the elusive combination of a high yield and a killer dividend growth rate.

I built a screen to find dividend aristocrats yielding at least 3% with an annual dividend growth rate of at least 10% since they began paying a dividend. Take a look below.

The Best Of The Dividend Aristocrats

Company Ticker DividendYield Annual DividendGrowth
McDonalds MCD 3.1% 20%
T Rowe Price TROW 3.1% 20%
Nucor NUE 3.1% 17%
AbbVie ABBV 3.5% 13%
Target TGT 3.4% 12%
Coca-Cola KO 3.2% 12%

From this list, I have chosen to highlight the two companies with the highest composite score.

McDonalds (NYSE: MCD ) is one of the most reliable dividend payers in the S&P 500. The company has been paying a dividend since 1976. Since then, McDonalds has raised its dividend every year. In the last 10 years, its annual dividend has tripled, climbing to $3.00 per share in 2016 from $1.00 per share in 2006. In addition to a great dividend and dividend growth rate, McDonalds is also growing earnings. Analysts are projecting 12% earnings growth in 2016 and another 10% in 2017.

Coca Cola (NYSE: KO ) began paying a dividend in 1920 and has increased its dividend every year for the last 54 years. In the last five years, Coca Cola has increased its dividend by 47%. Coca Cola has been on a roll for the last year. It has beaten earnings in each of the last four quarters by an average of 2.61%. Looking forward, Coca Cola is projected to grow earnings by 5% in 2017.

Risks To Consider: The U.S dollar has been one of the strongest currencies in the world for the last few years. Although both McDonalds and Coca Cola continue to grow earnings, a strong dollar could weigh on global companies operating in international markets.

Action To Take: Income investors that want to maximize their dividends and capital gains should prioritize companies with the optimal combination of yield and growth.

I'm not the only one at StreetAuthority talking about the importance of dividend growth in your retirement portfolio. My colleague Genia Turanova has an entire section of her Daily Paycheckportfolio dedicated to Fast Dividend Growers. Every month she brings her readers the best income stocks the market has to offer. Find out more about The Daily Paycheck here .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.