If you had bought shares of blue chip companies such as Johnson & Johnson (NYSE: JNJ) 20 years ago, thanks to dividend increases, those shares would be paying you over 40% respectively, today.
That's the power of dividend growth and in my mind it's one of the most important aspects of any income investment.
Dividend increases are decided by a company's board of directors, and there's no law that says a company must increase its payout.
That's why I've found its best to look at companies that already have a strong track record of growing their dividend. If a company has a history of increasing its dividend year in and year out, then dividend increases are clearly an important part of the company's culture. All other things being equal, if a company has increased its dividend consistently for 10, 20 even 50 years or more, then it's going to be far more likely to keep dividends growing in the future.
With that in mind, I recently did an extensive search to find companies that have raised their dividends for 50 years of more.
The market clearly rewards that kind of behavior. Of the 14 companies on the list, all but three have handily outperformed the 328% return from the S&P 500 in the last 20 years.
But the real story is what those dividend increases have been able to do for income-oriented investors. Just look at the dividend yields you'd be earning if you had bought these stocks just 20 years ago.
This just goes to show what dividend increases can do for your portfolio. Thanks to dividend increases, some of the market's lowest-yielding stocks can turn into big dividend payers over time. Of course with investing, nothing is 100% certain. Just because a stock has increased its dividend for 50 consecutive years, it doesn't mean it's guaranteed to increase it for another 50.
The lesson here is simple -- if you're ignoring dividend increases, then you could be missing out on some of the market's biggest high-yield opportunities.