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Investors love dividend stocks, but there are different ways to approach them. Below are two screens of the 30 stocks in the Dow Jones Industrial Average, to show which companies have grown their dividend payouts the most over the past five years and 10 years.
An investor looking to maximize income right now might look for stocks with the highest dividend yields, hopefully doing some more research to gain comfort that a company will be able to maintain the high payout. A very high dividend yield is a warning. The share price may have fallen because investors expect the payout to be cut.
But in the current environment, with interest rates having risen so much over the past year and a half, you might shy away from taking the risk of holding dividend stocks for immediate yield. You can get a yield about 5.5% on a three-month U.S. Treasury bill
BX:TMUBMUSD03M,
with that interest exempt from state and local income taxes.
But if you are looking to build up income over the years to be ready to take it when you need it, you might combine that desire with a long-term growth objective.
Here’s an example among the stocks in the Dow Jones Industrial Average
DJIA.
All share prices and dividend rates used in this article and in the two stock screens have been adjusted for any stock splits by FactSet.
If you had purchased shares of Merck & Co.
MRK,
oat the close on Sept. 5, 2018, you would have paid $65.43 a share. At that time, Merck’s quarterly dividend was 48 cents a share, for an annual dividend rate of $1.92. So the dividend yield at that time was 2.93%. The stock closed at $107.51 on Tuesday and the quarterly dividend had increased to 73 cents a share, for an annual dividend rate of $2.92. For a new investor, the dividend yield was 2.72%. But your dividend yield on your five-year-old shares, based on what you paid for them, had increased to 4.46%. Meanwhile, your share price had risen 64%. If you had reinvested your dividends over the five-year period, your total return would have been 91%, compared with total returns of 33% for the Dow and 70% for the S&P 500
SPX.
An approach of growing a dividend income stream can work out well over the long term, provided you are holding a diversified group of quality companies that are in the habit of raising payouts. It may not matter if the current yield isn’t very high when you make your investment.
The Dow’s best dividend compounders
We screened the 30 components of the Dow to see which companies showed the highest compound annual growth rates (CAGR) for dividends over the past five years and 10 years.
Four companies were excluded from the screens:
-
Boeing Co.
BA,
-2.21%
suspended its dividend in March 2020. -
Walt Disney Co.
DIS,
+1.25%
suspended its dividend in May 2020. In February, Disney announced cost-cutting measures and CEO Bob Iger said he had recommended that the company’s board of directors resume paying dividends. The company hasn’t resumed payouts yet. -
Salesforce Inc.
CRM,
+1.00%
doesn’t pay a dividend. -
The “new” Dow Inc.
DOW,
-0.72%
was created through a split of the DowDuPoint into three companies in April 2019. Dow Inc. is focused on the production of commodity chemicals, while DuPont de Nemours Inc.
DD,
-0.20%
makes specialty chemicals and Corteva Inc.
CTVA,
+0.04%
makes agricultural chemicals.
For the first screen of the Dow 30, here are the 10 companies that have had the highest dividend CAGR over the past five years:
| Company | Ticker | Five-year dividend CAGR | Dividend yield on shares purchased five years ago | Current dividend yield | Five-year price change | Five-year total return |
| Goldman Sachs Group Inc. |
GS, |
28.0% | 4.63% | 3.40% | 36% | 53% |
| Visa Inc. Class A |
V, |
16.5% | 1.26% | 0.73% | 72% | 78% |
| UnitedHealth Group Inc. |
UNH, |
15.9% | 2.81% | 1.56% | 80% | 93% |
| Home Depot Inc. |
HD, |
15.2% | 4.10% | 2.55% | 61% | 81% |
| JPMorgan Chase & Co. |
JPM, |
12.3% | 3.49% | 2.75% | 27% | 47% |
| American Express Co. |
AXP, |
11.4% | 2.27% | 1.50% | 51% | 63% |
| Nike Inc. Class B |
NKE, |
11.2% | 1.70% | 1.36% | 26% | 32% |
| Microsoft Corp. |
MSFT, |
10.1% | 2.51% | 0.82% | 207% | 225% |
| Amgen Inc. |
AMGN, |
10.0% | 4.31% | 3.35% | 28% | 50% |
| Merck & Co. Inc. |
MRK, |
8.7% | 4.46% | 2.72% | 64% | 91% |
| Source: FactSet | ||||||
Click on the tickers for more about each company.
Here’s the second screen, this showing the 10 components of the Dow with the highest 10-year CAGR for dividends. It turns out that the same four companies come out on top, but in a different order:
| Company | Ticker | 10-year dividend CAGR | Dividend yield on shares purchased 10 years ago | Current dividend yield | Price change – 10 years | Total Return – 10 Years |
| UnitedHealth Group Inc. |
UNH, |
21.0% | 10.16% | 1.56% | 549% | 656% |
| Goldman Sachs Group Inc. |
GS, |
18.6% | 7.04% | 3.40% | 107% | 149% |
| Visa Inc. Class A |
V, |
18.5% | 4.09% | 0.73% | 457% | 497% |
| Home Depot Inc. |
HD, |
18.3% | 11.45% | 2.55% | 349% | 465% |
| Amgen Inc. |
AMGN, |
16.3% | 7.54% | 3.35% | 125% | 195% |
| Nike Inc. Class B |
NKE, |
12.5% | 4.16% | 1.36% | 207% | 242% |
| Microsoft Corp. |
MSFT, |
11.4% | 8.71% | 0.82% | 968% | 1175% |
| JPMorgan Chase & Co. |
JPM, |
10.2% | 7.68% | 2.75% | 179% | 268% |
| American Express Co. |
AXP, |
10.1% | 3.25% | 1.50% | 117% | 150% |
| Honeywell International Inc. |
HON, |
9.6% | 5.32% | 2.22% | 140% | 194% |
| Source: FactSet | ||||||
So the same four companies top each list, with Goldman Sachs Group Inc.
GS,
taking the top prize for five-year dividend CAGR and UnitedHealthGroup Inc.
UNH,
in the top spot for 10-year dividend CAGR. All performed well for both periods, with only Goldman trailing the return of the S&P 500 for five years and 10 years.
While being in different order, the group for both screens was the same, except that Merck & Co. Inc. only made the five-year list and Honeywell International Inc. only made the 10-year list.
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