Increasing-dividend stocks

With growth slowing, interest rates persistently low, inflation on the rise, many companies flush with cash, the economic recovery cycle in its later stages and the tax treatment of dividends still favorable, a strategy focusing on stocks with the potential of increasing dividends may be particularly timely for investors. Investors too often overlook the importance of dividends, particularly the contribution to total return from reinvested dividends. These also can provide significant inflation protection in the form of a growing stream of income.

Dividends contributed more than 44% of the total return of the S&P 500 from the start of 1986 to the end of 2010, according to research from T. Rowe Price Group Inc. Our approach to dividend growth investing involves seeking growth at a discount. We use fundamental research to identify companies that offer an attractive valuation, a sustainable competitive advantage, better-than-average returns on invested capital, and excess free cash flow. We prefer firms at an inflection point, where policies on returning capital to shareholders are changing.

Source: Investment News

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