These Stocks' Dividends Are Skyrocketing

Justin is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

 As a dividend growth investor, I look to compound my gains through companies that consistently increase their dividends. However, there is more to it than finding a company that pays out a juicy amount. If you invest in companies that are growing their dividends rapidly, your income stream will compound faster.

Let's take a look at some companies that fit this criteria. We will examine dividend growth rates over the last 5, 3, and 1 year periods. If you have companies exhibiting accelerating dividend growth, you are on your way to big returns down the road. We will also take a snapshot of price to cash flow ratios, to know how much we are paying for this dividend growth. Finally, we will look at some catalysts that will give us confidence in the dividend to grow in the coming years.

Stop at your neighborhood discount store

Family Dollar (NYSE: FDO)

Family Dollar Stores is a discount retail chain that operates across the United States. It currently has about 7,100 locations spread across 45 states.

source: Yahoo Finance

  • Price to Cash Flow: 11.0x
  • Dividend Yield on Current Price: 1.50%
  • 5 Year Dividend Growth Rate: 13.3%
  • 3 Year Dividend Growth Rate: 16.6%
  • 1 Year Dividend Growth Rate: 16.7%

Why the dividends are moving higher

Family Dollar is rapidly increasing its store count. Store locations are projected to increase by 5-7 % annually over the next five years. This store growth is paired with expected earnings per share growth in the double digits moving forward. Family Dollar will also benefit from a still "spending cautious" US population as the recession is still fresh in everyone's minds.

Spam never tasted so good

Hormel Foods (NYSE: HRL)

Hormel Foods is a United States food company most well known for its canned meat product Spam. It also sells brands Dinty Moore, Chi-Chi's, and Jennie-O among others.

source: Yahoo Finance

  • Price to Cash Flow: 17.4X
  • Dividend Yield on Current Price: 1.70%
  • 5 Year Dividend Growth Rate: 14.9%
  • 3 Year Dividend Growth Rate: 16.4%
  • 1 Year Dividend Growth Rate: 17.6%

Why the dividends are moving higher

Hormel Foods has plenty of room to grow its dividend, its cash flow covers the dividend payout by three times and then some. In January, it acquired the peanut butter brand Skippy from Unilever. Skippy is the most popular peanut butter brand in China. This will serve to drive earnings per share growth, as well as help spark sales of its other brands in international markets.

Pick up some Arm & Hammer

Chruch & Dwight (NYSE: CHD)

Church & Dwight is a United States manufacturer of household products, Arm & Hammer being the most well known. Other brands include Nair, Trojan Condoms, OxiClean, and Pepsodent among others.

source: Yahoo Finance

  • Price to Cash Flow: 19.7x
  • Dividend Yield on Current Price: 1.70%
  • 5 Year Dividend Growth Rate: 45.0%
  • 3 Year Dividend Growth Rate: 61.0%
  • 1 Year Dividend Growth Rate: 41.2%

Why The Dividends Are Moving Higher

There is a lot of opportunity there for Church & Dwight to expand its earning power and, in effect, its dividend. Its domestic household products account for the majority of its revenues. This leaves a lot of room for international expansion, which currently account for about 20% of revenues. Management has also shown an initiative to explore new market segments, and has been bold with making acquisitions such as its purchase of nutritional supplement maker Avid Health in late 2012.

The bottom line

All of these companies have shown accelerating dividend growth over the last five years, and evidence for future growth. With an accelerating dividend growth rate, your yield on cost will increase faster, and your dividend returns will compound faster! This my fellow investors, is the essence of dividend growth investing.

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Justin Pope has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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