In the ever-changing landscape of investment opportunities, investors looking for steady income options are turning to dividend compounders, particularly in the S&P 500. With short-term interest rates remaining high, traditional options like bank CDs and savings accounts have become attractive for those seeking immediate income. However, for long-term goals such as building a retirement nest egg, investing in dividend-paying companies with a history of consistent payout increases can prove to be a successful strategy.

The past two years have seen a significant shift in interest rates. While savers were previously earning minimal returns with savings accounts and CDs, it is now common to find yields of over 4% or even 5% on these investments. However, it is worth noting that such high yields may serve as warnings since investors anticipate potential dividend cuts, resulting in relatively low valuations for stocks.

To gain further insights, a screening of the S&P 500 was conducted, focusing on companies that have consistently increased their dividends over the past five years. This analysis revealed that high current dividend yields were not necessarily required for these dividend compounders to deliver strong overall results, outperforming the index's total return.

Starting with the S&P 500, a group of 281 stocks was identified with dividend yields of at least 1.5% as of February 8, 2019. Among this selection, 20 companies stood out for having the highest dividend compound annual growth rate (CAGR) over the past five years. It is important to note that share prices and annual dividend rates have been adjusted for any stock splits to ensure accurate comparisons.

Most of these companies pay regular quarterly dividends, except for Freeport-McMoRan Inc., which currently offers a quarterly "base" dividend of 7.5 cents per share, supplemented by a performance-based payout tied to available cash flow. To illustrate the company's dividend structure, the most recent performance-based payout amounted to 7.5 cents, resulting in a quarterly dividend of 15 cents and an annual payout rate of 60 cents, which is reflected in the yields mentioned in the table above.

Freeport-McMoRan Inc. bases its quarterly payout on spot prices for gold and its financial results. The company anticipates total regular dividends of $1 per share annually based on its "reserves gold pricing assumption" of $1,400 an ounce for 2023. It is worth noting that the price of gold has fluctuated between $1,810.80 and $2,152.30 on the New York Mercantile Exchange over the past year, currently standing at $2,046.30. In addition to the base quarterly payout of 25 cents per share, the company has paid an additional 15 cents for a quarterly dividend totaling 40 cents over the past four quarters, resulting in an annual dividend rate of $1.60.

Newmont, another company in the list of dividend compounders, is set to announce its fourth-quarter results on February 22. At that time, the company is expected to establish the dividend payout range for the upcoming year.

Out of the 20 identified companies, 14 have outperformed the S&P 500's total return of 101% over the past five years, indicating the potential success of investing in dividend compounders. One such company that has shown promising results is Snap-on Inc.

As investors seek stable income options, carefully analyzing the track record of dividend compounders can provide valuable insights. While current dividend yields may vary, investing in companies with a consistent history of increasing dividend payouts has the potential to generate a strong long-term income stream for investors.