I recently wrote a not quite negative article on a high yield stock, where I discussed how a recent acquisition of a peer company would not help grow the dividend rate, so I thought the purchase would provide little if any benefits to investors in the stock. One commenter asked: “I do not understand why a 9% yield has to be increased to make a good investment?”… writers act like this yield has no value. Even if the 9% yield can be maintained for the next 25 years.” This question is a good starting point for the list of reasons why you should buy and own dividend stocks that are expected to regularly increase their dividend rates.

Fight Inflation: Possibly one of the greatest benefits of dividend growth is earning an income stream that increases over the years. This last weekend I went to buy a car battery for the first time in about 10 years. At Walmart a plain old run-of-the-mill battery set me back $112 bucks! I am pretty sure the last time I bought a battery it cost about $60. That 9% discussed above is a great yield now, but 10 or 20 years from now, the dividend will buy half or a third of what that cash will purchase today. You can find higher-yielding stocks that will still be expected to increase distributions by 2% to 3% per year. Drop down to the 4% to 6% yield range, and you can buy into 5% to 10% annual distribution growth. Don’t lose to inflation by owning stocks that do not grow the dividend.

Safety of Income and Principal: A company that pays a large dividend for a high yield on its stock doesn’t increase the dividend for only one reason: It can’t. For whatever reasons, the company is not able to grow free cash flow per share enough to increase the payout to shareholders. The lack of dividend growth shows a company living on the edge, and any negative event could reduce the free cash flow and the next thing you know, the dividend gets cut. And dividend reductions produce more than a loss of income.

The stock market will punish stocks that cut a dividend. On example, is Eagle Rock Energy Partners LP (Nasdaq: EROC), which in April 2013 was worth $10 per share and yielding 10%. In October, the quarterly payout was reduced from $0.22 to $0.15 and the share price dropped to around $5.20. Another example: At the end of 2012, telephone service provider CenturyLink, Inc. (NYSE: CTL) was a $40 stock, yielding over 7% on a $0.725 quarterly dividend that had not changed in 2 1/2 years. The dividend was reduced to $0.54 and the share price immediately dropped to $33 and eventually fell to $29 over the next year. With the loss of principal as well as loss of income, you cannot recover from that type of hit in your portfolio, so stay away from high-yield stocks that do not increase or pay bonus dividends. Remember, the safest dividend is the one that has just been raised.

A Secret Growth Strategy: Growing dividends produce the added benefit of increasing share prices for the stocks in your portfolio. The math in this case is simple: If a hypothetical stock yields 4% and the dividend grows by 10%, the share price must also increase by the same 10% to keep the yield at 4%. Over a period of years, the math must work, and if you have the discipline to buy shares when the market is down you will do even better. Consider the opportunity to buy our hypothetical stock when the price falls and the yield jumps to 6%. Your stock gains will be even bigger when the share price moves up enough to put the yield back to the 4% where the market usually values the company.

The stocks I recommend for subscribers of The Dividend Hunter usually come from the real estate investment trust (REIT) and master limited partnership MLP sectors. These companies are required to pay out the majority of cash flow as dividends, making it hard to hide bad economic news and easier to see (once you understand the different analysis tactics needed for REITs and MLPs) which companies are poised to provide continued dividend growth. Here are two – one from each camp – that pay attractive current yields and have very strong dividend growth fundamentals and outlook:

​W.P. Carey Inc (NYSE: WPC) is a $6.7 billion market cap REIT with a current yield of 5.4%. The company has increased its dividend every year since the late 1990′s. The rate of dividend growth has accelerated over the last several years, increasing at better than 10% per year.

Plains All American Pipeline, LP (NYSE: PAA) is a $20 billion crude and refined energy products pipeline and storage company. PAA currently yields 4.5%. The whole business of this MLP is managed to generate enough cash flow to at a minimum grow the distribution by 10% per year. If results are better than the 10% target, the extra cash is reinvested in the business to support next year’s 10% increase.