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2 Stocks That Have Delivered Spectacular Dividend Growth

Matthew DiLallo, The Motley Fool

The best dividend growth stocks tend to hike their payouts like clockwork every single year. However, some companies take that a step further by giving their investors a raise each quarter. Two that have a spectacular track record of delivering quarterly increases are Holly Energy Partners (NYSE: HEP) and Enterprise Products Partners (NYSE: EPD), with both having boosted their payouts for more than 50 straight quarters.

While that past success bodes well for the future, one of the two appears the more likely to keep its streak going over the long term.

A rising stack of coins with a bar chart and an upward arrow in the background.

Image source: Getty Images.

At least a few more increases left

This past April, Holly Energy Partners announced its 54th consecutive distribution increase. With that raise, the master limited partnership has now given its investors an income boost every single quarter since its initial public offering in July 2004.

That streak appears poised to continue for at least the next few quarters. In January, Holly Energy Partners unveiled its outlook for 2018, which included plans to lift its distribution each quarter this year. However, the company noted that at its implied growth rate -- 4% versus 2017's distribution level -- it would end up paying out 100% of its cash flow for the year, which is very tight. On the bright side, it said that the percentage would decrease in the second half when contractual rate increases go into effect, giving it a bit more breathing room. 

That tight payout ratio makes distribution growth beyond this year seem a bit uncertain. However, that doesn't mean the company won't be able to keep raising the payout. For starters, annual escalators in its contracts will help boost cash flow next year as well. Furthermore, it has a few small organic expansion projects underway, including an up to $20 million diesel supply project that should start up by the fourth quarter and provide some incremental cash flow. In addition, Holly Energy Partners has the financial capacity to make acquisitions, which has been its primary growth driver over the years.

Fueling its acquisition strategy has been its relationship with refiner HollyFrontier (NYSE: HFC), which has completed several dropdown transactions with its MLP over the years. That relationship will likely yield additional growth in the future, including the potential for joint acquisitions that enhance HollyFrontier's scale or to replace an incumbent service provider with Holly Energy Partners. 

Because acquisitions are so crucial to Holly Energy's growth strategy, the company needs to find the right deals so that it can continue to expand its 8.8%-yielding payout.

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Image source: Getty Images.

A full tank to keep growing

Enterprise Products Partners announced its 55th consecutive quarterly distribution increase this past April, which was its 64th overall since coming public in 1998. With that latest raise, the MLP yields an attractive 6.1%.

While there's some uncertainty about Holly Energy's ability to step up its payout beyond this year, that's not the case at Enterprise. That's because the company is in the midst of a major expansion phase that includes $4.9 billion of recently completed growth projects and another $5.3 million of expansions under construction. These projects will fuel significant cash flow growth in the coming quarters, giving it plenty of money to boost its payout.

However, instead of ramping its distribution growth rate to match cash flow, Enterprise slowed its pace last fall so that it could retain more money to invest in expansion projects. The company currently plans to maintain this pace through the end of 2018 and will reevaluate the growth rate in 2019. The company could then choose to use its growing excess cash to accelerate its distribution growth rate or sustain its current pace and allocate some of that cash to repurchase common units or invest in more growth projects. Any of those options should enable Enterprise to prolong its distribution growth streak for at least the next few years.

Amazing histories but one has a brighter future

Holly Energy and Enterprise Products have both increased their distribution to investors for more than 50 straight quarters, which is an impressive track record. Meanwhile, both appear poised to continue raising their distributions through at least the end of 2018. However, it's when we look beyond this year that things get murkier for Holly Energy. Enterprise, on the other hand, appears highly likely to keep its growth streak going for the next several years, which makes it a great income stock to consider buying right now.

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Matthew DiLallo owns shares of Enterprise Products Partners. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.