Magellan Midstream Partners, L.P. (NYSE:MMP) is currently offering a dividend of just over 5% annually. The dividend is paid quarterly and the company has a history of regularly increasing it as well. Magellan’s dividend in 2016 was $3.24, which is up 82% over the $1.78 it paid out in 2012.
In 2016 Magellan’s dividend grew by almost 11%, and the year before that it was up almost 17%. The company doesn’t just increase dividends annually, but it does so quarterly. A strong dividend is good, but one that continually grows is fantastic. With the dividend averaging annual increases of over 16%, it would take just five years for today’s dividend to double. If you were to invest and just let the dividend grow, in 10 years you could be earning a return of over 20% just on dividends.
Obviously, the assumption is that Magellan keeps on going at this incredible pace, which it may not. If the company struggles financially the dividend might not see as generous an increase, or may even be cut. But for illustrative purposes you can see the value of investing into a good dividend growth stock. If you just look for a stock that has a high yield you might miss out on a dividend stock that grows, and that is where you can see significant benefits by investing long term.
The great part of the dividend is that it is income you will earn on top of the appreciation you would expect to see in the stock price. After all, if the company is performing well and able to increase its dividends, you would expect its stock price to rise as well.
