Cheers! The Dow Jones Industrial Average of 30 blue-chip stocks recently broke through the magic 12,000 mark and is flirting with an all-time high. Meanwhile the benchmark S&P 500, a proxy for the U.S. stock market, hit its highest level in six years.

Time to uncork the champagne bottle -- or is it? After all, soaring share prices are leaving dividend yields in the dust. The average yield on S&P 500 stocks is now a puny 1.77% -- down from about 1.99% a year ago and a far cry from the 6% to 7% yields available to income investors in the early 1980's, according to research firm MSCI Barra. So, what's an income investor to do?

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Of course, you can always find stocks with seductive double-digit yields, but everyone knows there's no such thing as a free lunch. High yield often spells equally high risk, unless you've done a lot of due diligence.

But there's another way to satisfy your appetite for yield. Remember the adage "slow and steady wins the race"? That describes the dividend growth strategy to a "T".

For example, take 10%-Plus Portfolio holding BP Prudhoe Bay (NYSE: BPT). You can buy it today and get about an 11% yield. (If you total the last four quarterly dividends of $8.59 and divide that by a share price of $76.00, you'll get 11.3%.)

That's not bad, but based on the initial investment we made in BPT several years ago, the dividend yield we're earning is almost double that. We paid $41.33 for the stock two years ago, in October 2004. Divide $8.59 by our purchase price and you get a 20.8% yield.

Yes, we paid less for the stock, but that's not the only reason our yield is higher. The dividend is also growing. Back in October 2004, the payout over the last 12 months was just $3.14 per share -- almost a third of the current annual dividend.

In fact, over the past five years, BPT's dividend has grown an average of +19% a year, as you can see in our chart.

This is an impressive dividend record, but even better is that as the dividend has risen, so has the share price. And so, if you had invested in BPT five years ago, then your total returns -- including share price gains and reinvested dividends -- would have been over +550%. Try to beat those gains with your average S&P 500 dividend-paying stock!

The bottom line is that when you invest in companies that deliver solid dividend growth, over time you can end up earning exceptional yields of 20%, 30%, and even more on your initial investment. Most investors look at a stock's current yield, but it's also important to keep an eye on your effective yield -- the actual returns on your original investment.

Investing in high-yielding dividend growers is not without risk. As you've no doubt heard many times, past performance is no guarantee of future results. That stock market adage applies to dividend growers as well.

It's great to invest in a stock that has delivered strong dividend growth in recent years. However, what we really want to know is if the company has the wherewithal to keep growing its dividend in the years ahead. Typically, future dividend growth depends on the company's earnings outlook and financial condition.

Our search for today's high-yielding dividend growers led us to about two dozen dividend growers with yields of more than 5%. We then sifted through this list and kept the companies that look like they have the financial strength to churn out a growing income stream and earn outsized effective yields over the long haul. 

Some of the companies on the list below may make better candidates for a dividend growth strategy than others. Still, all are projected to grow earnings at least +5% per year over the next few years, according to data provided by research firm Capital IQ. And rising earnings are usually a good indicator of a company's ability to boost dividend payments.

Important Note:  Throughout the remainder of this article, editor Carla Pasternak details 11 securities with yields of at least 5% and the financial strength to continue raising dividends. However, in order to view the remainder of this article, you'll need to subscribe to our premium income-oriented newsletter -- High-Yield Investing. After you subscribe, you'll receive immediate access to this full article, as well as our monthly High-Yield Investing newsletter and a host of additional premium content. Please visit one of the following links to continue...

Good investing!

Carla Pasternak
Editor
High-Yield Investing
http://www.StreetAuthority.com

Carla has been employed in the investment industry for more than two decades. In addition to her work as a writer for several other nationally recognized financial publishers, her previous experience includes a position as President of a well-respected investor relations firm. She has also been writing shareholder reports for public companies (annual reports, speeches, corporate profiles, slide shows, etc.) since 1980.

A highly successful investment analyst, Carla specializes in high-yield, income-paying stocks. In that pursuit, she's always mindful to select companies that not only pay rich dividends, but that also have the potential to deliver strong long-term capital gains.

On the educational front, Carla holds both MBA and Ph.D. degrees. When she's not watching the market, she's teaching business courses at the college level and managing several million dollars in portfolio assets.

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