These dividend stocks just gave their investors a boost. Here’s why it’s a big deal.

Technological titan Microsoft (MSFT -0.78%) recently increased the dividend by another 11%. This new rate will cost it about $25 billion annually. It will likely keep the company near the top of the pack among global dividend payers.

Microsoft wasn’t the only company to give its investors a raise recently. The telecom giant Verizon (See 0.89%) raised his pay by less than 2% while running his real estate investment trust (REIT) Real estate income (A 1.53%) offered an even more modest wage increase.

While Microsoft’s pay hike made headlines because of its size, what’s even more important is the consistency with which these companies have increased their payouts (more than a decade each). This is because, historically, dividend producers have provided the highest total returns.

Dividend data

Hartford Funds and Ned Davis Research analyzed stock returns based on their dividend policy dating back 50 years. They found that the average dividend payer delivered an annualized average of 9.2%. total return with lower volatility (0.94 beta) compared to the average member of S&P 500 (the equal-weighted S&P 500 provided an average annualized total return of 7.7% with a beta of 1.0). This is due to the much lower yields of non-dividend payers (4.3% with a beta of 1.18).

However, not all dividend stocks are created equal. Dividend producers and originators lead yields:

Data source: Hartford Funds and Ned Davis Research.

This data makes it very clear that dividend growth is a key the engine of a stock’s outperformance. Even better, investors get those higher returns with less risk (as measured by lower value beta).

Great Dividend Growth Stocks

Microsoft has done a great job increasing the dividend. It has increased its pay at a double-digit annual clip in the last decade. Meanwhile, its growth cycle is up to 20 years. Not surprisingly, Microsoft has delivered robust total returns over that period (more than 16% annually, compared to 11% for the S&P 500).

The tech titan should have no problem continuing to increase its payout. She generates a enormous quantity of cash each year (analysts expect it to produce $81 billion in free cash flow next year). That will easily cover its projected dividend expense ($25 billion), leaving it with ample excess to fund growth and share buybacks (it recently unveiled a new $60 billion buyback program). Meanwhile, Microsoft has a cash-rich balance sheet with minimal net debt. The company is also growing at a healthy pacefueled by its investments in cloud computing and artificial intelligence (AI).

Verizon also has an excellent record of dividend growth. It recently increased its payout for the 18th year in a row, maintaining the longest current streak in the US telecom sector. While Verizon only offered its investors a modest raise, it offers a high dividend yield (over 6%).

The telecom giant can easily afford the payment. It generated $16.1 billion in cash flow from operations in the first half of this year. It covered its capital expenditures ($8.1 billion) by $8.5 billion. The company’s excess free cash flow was more than enough to finance its dividend expense ($5.6 billion). With its free cash flow growing as it invests in growing its 5G network and fiber networksVerizon should be able to continue growing its high-yielding dividend. While Verizon’s returns have lagged the market in recent years, it could offer higher returns in the future as its investments reinvigorate growth (and keep the dividend headed higher).

Finally, income from real estate has increased recently Above its monthly dividend from $0.263 per share to $0.2635 per share, an increase of 0.2%. This was the fifth increase this year (and the 127th since publication in 1994), extending his quarterly streak to 108 in a row.

REIT gains might be modest, but they are consistent and strong over the long term. It has delivered a total annual return of 13.5% since going public 30 years ago, thanks to its high yield (recently around 5%) and ever-growing payouts (4.3% compound annual dividend growth from 1994). Realty Income expects to grow its adjusted funds from operations with an annual rate of 4% to 5%. in the futurewhich should support continued dividend growth. Add that to its high yield and there’s a clear path to double-digit annualized total returns.

More dividend growth ahead

Dividend growth stocks have historically produced the highest total returns. That’s it why investors should take note of the recent raises Microsoft, Verizon and Realty Income have given their investors. With more growth ahead, they are in solid positions to produce above-average total returns in the future.