While sometimes not the highest yielders, dividend growth stocks, known for steady dividend increases over time, can be valuable additions to your income portfolio.
More than 40% of total stock returns among S&P 500 components have historically come from dividends, and all else being equal, a rising dividend amplifies the compounding effect boosts stock returns.
And there is ample evidence that dividend growers outperform other stocks over time with much lower volatility. For instance, a Hartford Funds study of the past 50 years showed dividend growers outperforming other dividend payers by 37 basis points annually and non-dividend payers by 102 basis points.
Why do dividend growers outperform? One reason may be the expanding earnings and cash flow and shareholder-friendly management teams that often characterize these companies. In addition, consistent profitability, solid balance sheets and low payouts enable dividend growers to weather any economic storm.
Dividend-growth stocks are likely to become even more appealing in 2021 due to their ability to shelter investors from rising inflation. Dividend increases protect against inflation by providing a bump in income every time the dividend is hiked.
Today, we’re looking at 15 stocks that have recently announced much-larger-than-usual dividend increases. Each has already raised its dividend once in 2021, with increases ranging from 18% to nearly 40%. Most also fit the classic definition of a dividend grower, based on their cash-rich balance sheets, formidable cash flow and meager payouts allowing room for more dividend growth.
Data is as of April 26. Dividend yields are calculated by annualizing the most recent payout and dividing by the share price. Stocks listed in reverse order of recent dividend growth.
- Market value: $8.8 billion
- Dividend increase: 18%
- Dividend yield: 3.4%
Ares Management (ARES, $54.99) is a global alternative asset manager that invests across multiple segments, including credit, private equity and real estate. The company managed roughly $197 billion of assets at the end of 2020, and has offices in North America, Europe and Asia.
Despite the global pandemic, Ares Management generated impressive results in fiscal 2020, with assets under management and fee-related earnings up 30%. The company also reported $40 billion in new funds raised, and deployed just half of that. Additionally, EPS in the December quarter exceeded analyst estimates by 20%.
During the first quarter of this year, Ares walked away from its proposed joint venture with AMP, one of Australia’s largest wealth managers, and closed its new Pathfinder Fund. The new fund has secured $3.7 billion of financing commitments, far exceeding the company’s original $2.0 billion funding goal.
Ares issued an 18% dividend increase for its first quarter, which followed a 25% hike in 2020. Dividends haven’t increased every year, however, and the company has occasionally cut dividends during downturns. And…