As earnings season winds down, many stocks that I recommended have received a lot of excellent dividend news. Dividend growth generates annual total returns that work through the market cycles — no timing required. A couple of recent examples illustrate my point – and they show how you can get in on this great strategy, too.

A dividend growth strategy involves buying shares of stocks where the company regularly — usually annually — increases the dividends it pays to shareholders. If you calculate the average annual total returns of dividend growth stocks, you will find that over the long-term, you get a compound annual growth rate that comes very close to the average dividend yield plus the average dividend growth.

Dividend increases can also help a stock price in the shorter-term. Last week, we saw a dramatic example.

On Tuesday, March 7, the Dow Jones Industrial Average closed down 575 points, and the S&P 500 dropped by 1.5% for the day. That day, Dick’s Sporting Goods (DKS) gained over 11%. Dick’s released fourth-quarter earnings showing excellent results. A significant factor for the share performance was the fact that the company more than doubled the quarterly dividend, going from $0.4875 per share to $1.00. The boost also doubled the yield to 3.0%.

Before the big increase this year, the DKS dividend had been growing by more than 20% per year. Investors have seen a 380% total return over the last five years. I suspect the growing dividends had something to do with those great returns.

In February, the Federal Agricultural Mortgage Corp (AGM) increased its dividend by 16%, going from $0.95 to $1.10 per share. Through most of the first quarter, when the broader market was up about 4%, AGM appreciated by 26%. The AGM dividend average growth for the last decade was 20% per year, meaning investors in the stock enjoyed a 400% total return for the ten years.

I hope boards of directors realize that few things help a share price more than meaningful dividend increases. Share buybacks are a hot topic these days, but I think returning cash to shareholders as growing dividends often produces better returns for those investors.

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