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What are we looking for?

U.S. stocks that have steadily increased their dividends over the past few years.

Companies that regularly increase dividends can be a good hedge against inflation and a potential source of capital gains.

How we did it

Ronak Parikh of Bloomberg constructed a screen to find U.S. firms that have increased their dividends each year by 10 per cent or more and whose stock prices have not decreased year over year in that same period.

What we found

Only 11 companies passed this demanding screen. Each of them deserves further research, since they seem to combine rapid dividend growth with relatively stable stock prices.

Dividend stocks are particularly attractive right now because yields on fixed-income investments are so low. A stock with a steadily rising dividend can provide better returns than many bonds while offering protection against a resurgence in inflation.

Investors, though, should not assume that all dividends are created equal. Before buying into a dividend stock – even one with a steadily rising payout – investors should consider whether a company's growth in revenue and cash flow is capable of supporting a higher dividend.

The best bets tend to be companies that are paying out only relatively modest amounts of their cash flow in dividends and that are growing their revenue in non-cyclical businesses. These companies are well positioned to reward investors with further dividend increases.