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I much prefer stocks with growing dividend streams versus stocks with high yields, explains Chuck Carlson, a specialist in dividend reinvestment plans at the editor of DRIP Investor.

High-yielding stocks tend to congregate in the same few industries, thus affording little in the way of diversification. High yielders often have subpar capital-gains potential. And high yielders have little if no room for dividend hikes.

On the other hand, stocks that grow their dividends consistently provide a lot of benefits, not the least of which is an opportunity to exploit the power of compounding via reinvestment of a growing dividend stream. And if you are taking the cash and not reinvesting, dividend growth provides a way to hedge your cash flow against the adverse effects of inflation.

Perhaps the most consistent dividend payer in the Editor’s Portfolio — and one of the most consistent payers among all stocks — is Procter & Gamble (PG).

The consumer-products giant has paid a dividend for 134 consecutive years since its incorporation in 1890. And Procter & Gamble has increased that dividend for 68 consecutive years. The latest dividend hike is a 7% bump in the payout to a quarterly rate of $1.0065 per share, payable May 15.

To be sure, Procter & Gamble has not been the most dynamic stock over the years. However, its consistent dividend increases have helped these shares generate a decent total return.

A $10,000 investment in Procter & Gamble 20 years ago would have grown to more than $52,000 today (assuming you reinvested that rising dividend stream). That comes out to an annualized return of roughly 8.7% — not a gang-buster return, but good enough to double your money every eight or so years.

Procter & Gamble stock has outperformed the S&P 500 Index so far this year. And the stock’s yield of 2.6% is a nice kicker to total returns. Should the recent market volatility evolve into a more protracted pullback, I would expect Procter & Gamble stock to outperform the broad market for the remainder of the year.

About the Author

Charles Carlson is the CEO of Horizon Publishing, an investment newsletter publisher, and is also the CEO of Horizon Investment Services, a money management company. Horizon Investment Services is the sister company of Horizon Publishing Company, the publisher of Dow Theory Forecasts, Upside, and DRIP Investor newsletters.

Mr. Carlson is the editor of the DRIP Investor investment newsletter and is a contributing editor of Dow Theory Forecasts investment letter. He is the author of nine books, including the bestselling Eight Steps to Seven Figures (Doubleday), and his latest book, The Little Book of Big Dividends, published by John Wiley & Co.

Mr. Carlson's comments appear in such newspapers and magazines as the Wall Street Journal, the New York Times, USA Today, Newsweek, US News & World Report, the Washington Post, and more. He also appears frequently on television and radio shows, including CNBC and CNN.

Mr. Carlson is a Chartered Financial Analyst (CFA), holds an undergraduate degree in journalism from Northwestern University, and an MBA from the University of Chicago.

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