As the market worries about interest rates, I’m happily counting my pile of growing dividend checks…

Despite all the doom and gloom in the news, plenty of companies are still rewarding loyal shareholders with hefty dividend increases.

Here at Intelligent Income Daily, we love investments that provide safe, reliable, growing income. That’s what helps us sleep well at night: Knowing that no matter what the market does, we’ll still have a steady flow of cash coming into our accounts.

And dividends are one of our favorite ways of collecting that income.

So today, I’ll share what makes a company a good dividend payer and what to look for when selecting these income payers. So you can find good income opportunities, regardless of what’s going on with interest rates.

Dividend Growers Are the Best Dividend Payers

In the past few weeks, we’ve seen a few sizable dividend raises:

• Microsoft (MSFT) hiked its dividend by 10%. That makes 21 years in a row of increasing its payout.

• Accenture (ACN) bumped its dividend up by 15.5%. It’s at 18 years and counting.

• Texas Instruments (TXN) rounded up a 7.8% raise. That’s year 19.

• New Jersey Resources (NJR) continued chugging along with a 7.6% increase. 27 years nonstop.

My personal favorite was Realty Income (O), which delivered like clockwork with a 0.2% dividend boost. That might not sound like much to you, but you have to understand – Realty increases its dividend every single quarter. Over the past year, its dividend is up by 5.1%.

In fact, this was an important milestone: Its 100th consecutive quarterly dividend increase. That’s 25 years.

These are just a few of the many dividend-growing companies my team and I cover. So we know what to look for to find a good dividend grower.

First and foremost, it has to have a stable, profitable business that has a moat against competitors and opportunities for growth.

But more importantly, the company’s management has to make the dividend a priority.

You see, when a company has more cash than it needs to run its business, it has a few options. So let’s break down what they are and why the dividend option is the one we like to see most.

The Dividend Option Directly Rewards Shareholders

The options a company has to deploy extra money are: Investing in new growth opportunities, buying a competitor, repurchasing shares, paying down debt, or paying a dividend. All of them have pros and cons, so let’s go through them.

• Investing in growth comes with risks – new technologies might not work, or new products might not catch on in the market.

• Mergers are an easy way to buy growth. Sometimes, an acquisition may be the only way to get an important piece of technology. But studies have shown that 70-90% of acquisitions end up failing.

• As I wrote to you last week, buybacks are the most tax-efficient way to reward shareholders, in theory. But more often than not, companies spend a lot buying back stock when prices are high, only to stop when times get tough and shares are cheap.

• Debt provides leverage, so this is a benefit for growth. While too much debt can hurt a company, not using debt is less efficient and results in lower returns, particularly if a company is able to borrow at low interest rates.

• A company that pays dividends to its shareholders gives them control and options – to spend the money as they see fit or to reinvest in more shares. But if a company sets its dividend too high, it may underinvest in itself and have to cut its payout when times get tough.

So the best dividend growers strike a delicate balance between preparing for the future and consistently rewarding shareholders with sustainable payouts.

Committing to a growing dividend is an important policy that influences how a company operates and spends its earnings.

The companies that keep up dividend growth streaks for decades through good times and bad tend to be higher quality names that experience less volatility. And those are exactly the ones that I want to be invested in when the markets go crazy.

A good place to get exposure to dividend payers is the Schwab U.S. Dividend Equity ETF (SCHD). It holds around 100 stocks that have consistently grown their dividends. So you can stop worrying about interest rates and start making income from some of the best companies in the market.

Happy SWAN (sleep well at night) investing,

Brad Thomas
Editor, Intelligent Income Daily