Most income-focused investors tend to chase high dividend yields, assuming bigger payouts now are always better. But if you’re in it for the long game, there’s a smarter way to build wealth: focusing on dividend growth, not just yield.
In this article, we spotlight seven standout stocks that didn’t just beat the S&P 500, they multiplied their dividends over the past five years, rewarding patient investors with both rising income and major capital appreciation.
Why High-Yield Stocks Can Be Risky
High dividend yields may look attractive, but they often signal trouble. A falling share price — due to weak fundamentals or impending dividend cuts — can artificially inflate a stock’s yield and lure in unsuspecting investors.
By contrast, companies that steadily grow their dividends tend to have strong free cash flow, disciplined capital allocation, and business models that reward long-term shareholders. Over time, this growth compounds, leading to serious gains.
Case Study: Morgan Stanley
Back in September 2020, Morgan Stanley traded at $48.35 and offered a quarterly dividend of $0.35 — a 2.9% yield. That may have seemed underwhelming in a low-interest-rate environment. But over the next five years, the dividend nearly tripled to $1.00 per quarter.
That boosted your yield on cost to 8.27% — nearly triple the yield for someone buying the stock today. Plus, the share price surged by 229%. With dividends reinvested, your total return would have hit 286%.
Today’s yield of 2.52% still looks strong for a global investment bank, especially one that’s shifted toward the steadier, higher-margin world of asset management. In Q2, Morgan Stanley generated 57% of total revenue from this business line — a major shift from a decade ago.
The 7 Dividend-Growth Champions of the S&P 500
We screened the S&P 500 for companies that had:
- At least a 1.5% dividend yield in September 2020
- Continued to pay dividends through 2025
- Achieved the highest five-year dividend CAGR
Here are the top seven dividend compounders — ranked by growth rate:
| Company | Ticker | 5-Year Dividend CAGR | Yield on Cost | Yield in 2020 | Yield Today | Price Change | Total Return |
|---|---|---|---|---|---|---|---|
| Targa Resources | TRGP | 58.49% | 28.51% | 2.85% | 2.39% | 1,094% | 1,219% |
| Wells Fargo | WFC | 35.10% | 7.66% | 1.70% | 2.15% | 257% | 300% |
| Goldman Sachs | GS | 26.19% | 7.96% | 2.49% | 2.01% | 296% | 346% |
| Morgan Stanley | MS | 23.36% | 8.27% | 2.90% | 2.52% | 229% | 286% |
| Williams-Sonoma | WSM | 22.42% | 5.84% | 2.12% | 1.35% | 332% | 377% |
| EOG Resources | EOG | 22.16% | 11.35% | 4.17% | 3.64% | 212% | 298% |
| Diamondback Energy | FANG | 21.67% | 13.28% | 4.98% | 2.80% | 375% | 490% |
Every stock on this list outperformed the S&P 500’s five-year total return of approximately 114%, and each one compounded its dividend payout aggressively.
What These Stocks Have in Common
While they span industries from banking to energy to home retail, these seven companies share three traits:
- Strong cash generation
- Resilient earnings
- Long-term capital discipline
Some, like Targa and Diamondback, benefited from a cyclical energy boom. Others, like Morgan Stanley and Goldman Sachs, executed strategic pivots toward higher-margin business lines. What unites them is the consistent ability to raise dividends — and back those raises with real performance.
Why Dividend Growth Matters More Than Yield
It’s easy to fixate on a stock’s current yield, but that figure only tells part of the story. What matters more is the trajectory of those dividends over time.
If a company increases its dividend by 20–30% per year, your income grows with it and the market often rewards that discipline with higher share prices. That’s a powerful combo for total return.
The key is patience. These gains don’t happen overnight, but over five years, the math adds up fast.
Building a Smart Dividend Growth Portfolio
Want to put this strategy into action? Here’s how to get started:
- Screen for 5+ years of consistent dividend growth
- Avoid yield traps — double-check that payout ratios are sustainable
- Look for business model transformation stories (e.g., Morgan Stanley)
- Diversify across industries to reduce sector-specific risk
- Reinvest dividends for compounding returns
You don’t need to chase 10% yields to build income. In fact, starting with just a 2% yield that triples over time can put you far ahead especially if share prices rise along the way.
Final Thoughts for Investors
Dividend growth is one of the most underappreciated wealth-building strategies in the market today. The seven stocks above prove it delivering exceptional total returns while steadily boosting shareholder payouts.
Whether you’re a retiree looking for rising income or a younger investor playing the long game, these companies show what’s possible when dividend policy meets business performance.
Use them as a springboard for deeper research. Because in dividend investing, consistency is king — and time is your greatest ally.
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