S&P 500 companies with the fastest dividend growth over the past decade

As a Dividend Growth Investor, I look to invest in blue chip dividend growth stocks. These boring businesses have managed to grow their bottom lines for decades, have competitive advantages and also shower their shareholders with annual increases to their dividend payouts for many decades.

I look for companies that exhibit the following characteristics:

1) A track record of annual dividend increases

2) Earnings growth over the past decade, to support future dividend increases

3) Dividend growth exceeding inflation

4) Dividend payout ratio that is sustainable

5) Attractive valuation

In my process for identifying quality companies for further research I often screen my dividend growth investing universe, by applying various criteria. The results of the screen are then downloaded at reviewed, one company at a time. This exercise helps me to identify companies for further research, and potential inclusion in my portfolio at the right price.

This exercise also provides good lessons that may be applicable down the road, and hopefully help me improve my process in the future.

I try to shake things up a little bit, and look at the data from various perspectives. This is how I learn, as I challenge myself and hopefully grow as an investor.

I recently ran a screen using my excel database that showed me the 30 companies in the S&P 500 with the fastest rate of dividend growth over the past decade. You can view the results of the screen below:

Symbol	Sector	Years of Annual Dividend Increases	Price 9/30/2021	Dividend Yield	Most Recent Raise	10 year dividend growth (annualized)
AVGO	Information Technology	11	484.93	2.97	10.77	69%
STT	Financials	11	84.72	2.69	9.62	48%
LNC	Financials	11	68.75	2.44	5.00	45%
ZION	Financials	9	61.89	2.46	11.76	42%
APH	Information Technology	9	73.23	0.79	16.00	42%
MA	Information Technology	10	347.68	0.51	10.00	39%
FITB	Financials	11	42.44	2.83	11.11	39%
DFS	Financials	11	122.85	1.63	13.64	36%
VLO	Energy	10	70.57	5.55	8.89	36%
KEY	Financials	10	21.62	3.42	8.82	34%
BAC	Financials	8	42.45	1.98	16.67	34%
JPM	Financials	11	163.69	2.44	11.11	34%
RF	Financials	9	21.31	3.19	9.68	32%
DHR	Health Care	8	304.44	0.28	16.67	31%
CE	Materials	12	150.64	1.81	9.68	30%
CMA	Financials	11	80.50	3.38	1.49	30%
UNH	Health Care	12	390.74	1.48	16.00	28%
PNC	Financials	11	195.64	2.56	8.70	28%
TSCO	Consumer Discretionary	12	202.61	1.03	30.00	27%
TSN	Consumer Staples	9	78.94	2.25	5.95	27%
SBUX	Consumer Discretionary	12	110.31	1.78	8.89	25%
V	Information Technology	13	222.75	0.57	6.67	25%
EXR	Real Estate	12	167.99	2.98	25.00	25%
MKTX	Financials	13	420.69	0.63	10.00	24%
USB	Financials	11	59.44	3.10	9.52	24%
CBOE	Financials	12	123.86	1.55	14.29	23%
TXN	Information Technology	18	192.21	2.39	12.75	22%
AOS	Industrials	27	61.07	1.70	8.33	22%
MS	Financials	8	97.31	2.88	100.00	21%
UNP	Industrials	15	196.01	2.18	10.31	21%

I believe that this list provides a good initial group of companies for further research.

There are several lesson that come to mind, after reviewing this list of companies.

First of all, several of these companies had just initiated a dividend about a decade ago. This includes the likes of Visa and Mastercard and Starbucks. In addition, these companies managed to grow dividends and earnings at a high pace for a long period of time. If you can identify such a company early on, you can make a good return on investment and a very attractive yield on cost, even if the initial yield was low. This is why it is important to look at dividend yield in conjunction with dividend growth, when looking at companies. A company with a 6% yield may turn out to be a worse candidate in the long run than a company with a 1% yield today, if the latter grows dividends at a consistent and high rate, while the former doesn't grow dividends. 

For example, if you bought shares of Visa a decade ago, you would have paid $21.43/share and earned an annual dividend of $0.15/share for a dividend yield of 0.70%. Fast forward to 2021, and you are generating an annual dividend of $1.28/share, and have a stock worth $231/share. Your yield on cost is 6%, and your initial investment has risen up tenfold.

Second of all, a lot of the financials on the list managed to deliver impressive dividend growth, because they cut dividends during the financial crisis from 2007 - 2009. This includes the likes of State Street, U.S. Bank, Bank of America and J.P. Morgan. This just goes to show you that you need to evaluate companies and try to understand context as well. A lot of financials dividends turned out to be more cyclical than before, and were slashed during the 2007 - 2009 Great Recession. However, a lot of financials had also managed to grow dividends for 30+ years prior to the Great Recession too. Perhaps, some investors may have turned sour on the sector in general due to the Financial Crisis, but in hindsight that was an opportunity for investors to buy good franchises at a low valuation? The lesson is that while turnarounds seldom turn, if they do, investors who get the timing right may reap huge profits.

Third, you can see that not many of these companies have managed to grow dividends for a long period of time. This goes to show us that there are limits to growth. Very few companies can afford to grow dividends for a long period of time, while also growing dividends and earnings at a high double digit rate of return. At some point, the laws of gravity take over. This is why we should avoid getting overly mesmerised by high growth rates, the same way we should avoid getting overly mesmerised by high dividend yields. Very few companies can grow at a high pace for long periods of time, which is something you need to have in mind. This is why I look at P/E, along with dividend growth, yield, stability of the earnings stream, etc. There is a trade-off between yield and growth, and a trade-off involving the length of dividend growth you can have versus a high rate of growth. 

In general, I need to put a note for myself that  studying companies that have recently initiated a dividend, and then shown a commitment to growing it may be lucrative down the road. While this exercise may be prone to noise, it would have helped the investor identify companies like Tractor Supply (TSCO), CBOE,  Visa (V), Broadcom (AVGO), MarketAxess Holdings (MKTX), UnitedHealth Group (UNH).

Relevant Articles:

- The Tradeoff between Dividend Yield and Dividend Growth

- Three stages of dividend growth

- Types of dividend growth stocks