While there's no doubt that dividend shares with generous yields are great, I think fast-growing dividends are arguably even better.
Companies that grow their dividends at an above-average rate can quickly turn an average yield into a market-beating one. Often this will result in the yield on cost being vastly superior to anything you'd get from even the banks.
Take for example Retail Food Group Limited (ASX: RFG). In FY 2017 the food and beverage company paid its shareholders a fully franked 29.75 cents per share dividend.
Approximately 10 years ago you could have picked up the company's shares for just $1.87. Which means that today you would be receiving the equivalent of a fully franked yield on cost of 15.9%.
Furthermore, adding up all its dividends during the 10 years reveals a total of $1.83 per share has been paid to shareholders. This is the equivalent of a 97.8% return on your original investment.
And that's not including the 143% gain that its shares have made during the same period.
All in all, I believe this demonstrates why buy and hold investments in companies with strong growth prospects and progressive dividend policies can help create significant wealth.
As Retail Food Group's growth may be slowing down a touch now, it may be unlikely that the company will be able to grow its dividend at such a rate in the future.
But shares like Altium Limited (ASX: ALU), Collins Foods Ltd (ASX: CKF), and Premier Investments Limited (ASX: PMV) could have the wherewithal to do something similar over the next decade.
This could make them well worth a closer look today if you ask me.
