Tuesday, December 16, 2008

Best Dividends Stocks for the Long Run

In his book, Stocks for the Long Run, Wharton Professor Jeremy Siegel proves that stocks have been the best performing investing for the past 200 years in the US. Equities outperformed other assets classes such as gold and fixed income. Typically, stock returns are derived from price appreciation and dividends. Dividend payments have historically accounted for 40% of the average annual stock market return. A lesser known fact is that reinvested dividends have provided for 97% of historical stock market returns.

During tough market conditions such as the 2008 bear market, investors realize the positive of getting a return on your investment even if prices are collapsing across the board. Add in dividend increases, and several years down the road the income off the initial investment could be producing sizeable returns. Generalizations like this are usually ignored by investors however, as it doesn’t really provide a clear plan for action.

In order to respond to this I have included the best dividend stock for the long run. They come from many sectors and industries, and represent growing as well as maturing industries. The portfolio is not a recommendation to buy or sell any stocks, as it reflects my specific financial risk tolerance. Always do your own research before initiating a position in any financial instrument.

Consumer Discretionary

FDO Family Dollar Stores (analysis)
MCD McDonald's Corp (analysis)
MHP McGraw-Hill Companies (analysis)
SHW Sherwin-Williams (analysis)
VFC VF Corp (analysis)

Consumer Staples

CLX Clorox Co (analysis)
KO Coca-Cola Co (analysis)
CL Colgate-Palmolive
KMB Kimberly-Clark (analysis)
PEP PepsiCo Inc (analysis)
PG Procter & Gamble (analysis)
SYY Sysco Corp (analysis)
WMT Wal-Mart Stores (analysis)
ADM Archer Daniels Midland (analysis )
HRL Hormel Foods Corp.


CVX Chevron Corp (analysis)
XOM Exxon Mobil (analysis)
BP British Petroleum (analysis)


AFL AFLAC Inc (analysis)
CINF Cincinnati Financial (analysis)
STT State Street Corp (analysis)
CBSH Commerce Bancshares (analysis)
CB Chubb Corp. (analysis)

Health Care

BDX Becton, Dickinson
JNJ Johnson & Johnson (analysis)
MDT Medtronic, Inc


MMM 3M Co (analysis)
EMR Emerson Electric (analysis)
GWW Grainger (W.W.) (analysis)
ITW Illinois Tool Works (analysis)
TFX Teleflex Inc (analysis)
UTX United Technologies (analysis)
DOV Dover Corp. (analysis)

Information Technology

ADP Automatic Data Proc (analysis)


APD Air Products & Chem (analysis)
VAL Valspar Corp (analysis)
NUE Nucor Corp. (analysis)


ATO Atmos Energy Corp
ED Consolidated Edison (analysis)
BKH Black Hills Corp.

Typically dividend investors are being told to hold stocks in certain sectors such as energy trusts, utilities and financials. I do believe however that concentrating ones portfolio only on certain sectors does increase your risk. Chasing current dividends yields is seldom the best plan for action. Overweighting certain sectors might also be a recipe for a financial disaster. Maintaining a balanced approach that focuses on dividend growth and yield, as well as the traditional tools like diversification and dollar cost averaging, could be the best strategy for the long run. Furthermore being flexible could also aid to your portfolio. Chances are that new sectors of the economy will emerge over the next few decades. Adding reasonably priced dividend achievers is one way to be involved in those stocks.

The dividend stocks for the long run portfolio is underweight in technology and telecommunications services, and overweight the Consumer Staples and Consumer discretionary sectors. It only contains one foreign based stock, BP. The average yield is 3.45%, whle the average five year dividend growth rate is 15.90%. If the long term dividend growth rate stays at 6% on average for the whole portfolio, the expected yield on cost will be around 7% in 12 years and 14% in a little over 2 decades. You could also check it from this link.

I will be tracking the following portfolio versus the market using marketocracy virtual mutual funds.

Full Disclosure: I have positions in ADM, ADP, AFL, APD, BP, CINF, CLX, ED, EMR, FDO, GWW, ITW, JNJ, KMB, KO, MCD, MHP, MMM, NUE, PEP, PG, SHW, STT, TFX, UTX, WMT,

Free Stock Trade. Trade stocks for free on Zecco.com. The Free Trading Community. www.zecco.com

Relevant Articles:

- 20 Top High Dividend Growth Stocks
- Dividend Portfolio Investing for monthly income
- High yield stocks for current income
- International Over Diversification


  1. DGI,

    Can you tell me how you calculated yield on cost in 12 and 20 years?

    "7% in 12 years and 14% in a little over 2 decades"

    As I understand it, total return = average yeild + dividend growth rate

  2. Very Complete List.

    Its missing a few that i would add.

    ABT - Abbot
    MSFT - Microsoft (plenty of cash on hand, 0 debt)

  3. Hmmm...I have KO, CL, KMB, PG, WMT, BDX & JNJ. Some of those names interest me a lot, but I still view them as rather expensive in comparison to where I would like to initiate a position.

    Good post though - there are a number of those stocks I haven't checked in on in a while that may be of some reasonable value.

  4. Brian,

    I am using the rule of 72. If my growth rate is 6% per year forever, then my dividends would double in 12 years. Using a starting yield of 3.45%, in 12 years that comes out to 6.90-7%. In 12 more years at 6% growth, your yield on cost rises to 14%.

    By yield on cost I mean the following:

    You buy a stock for $100/share. In 2008 you get 3.50/share in dividends. Your current yield and yield on cost are 3.5%. In 2020 you receive $7/share. Your yield on cost is 7% on your cost of $100.


    I will be bullish on MSFT in 5 years, when they become a dividend achiever.

    As for ABT it looks interesting, but the yield growth/balance does not seem as attractive as other non pharma stocks.


    I own more than 35 dividend stocks. Some are on hold ( GE, MO) and have no further adding, while others I add to..

  5. Very comprehensive post, thanks.

    As a retiree with a similar strategy, I'd only add that I favor those payers who increase their dividends faster than inflation. Fortunately, in the current environment, mosst qualify. If we hit hyper-inflation in a year or two, things will get more interesting for this strategy.

  6. Thanks for the list. Here's a little fact I like to share, and it proves your point. McDonald's is now paying a 25% annual dividend - for those investors who bought back in the 1990-91 time period.

    Sorry - I don't care how good the dividend or the growth rate on Hormel is - I just can't invest in Spam!

  7. BP is one of my favorite stocks. They pay a hefty dividend and have growth potential in the energy industry. Analysts never seem to mention BP. Exxon, ConocoPhillips and Chevron garner all the attention.

  8. excellent list of companies.

  9. Txs for the list. Yes, helpful and informative. My only suggestion is to include a few more international picks such as DEO (UK), VOD (UK) and NSRGY (Nestle, Swiss). These are not only world market leaders, but great dividend growth stocks. When the dust settles, MFC (Can) may also turn out to be a world leader in insurance.

  10. I would also recommend looking at some Dividend paying ETFs, like PFF, which invests in preferred stocks and is paying over 11% right now.

    There is a also very conservative options strategy called a "collar strategy" where you hold a stock (or an index) and sell covered calls against it, and use the money from the calls to buy "insurance" using puts. I’ve been doing a lot of research into using this strategy. It looks like a very good conservative strategy. While you can "roll this yourself", it’s a lot of work. I have found 2 ways to have somebody else implement this for me. One is a service: http://www.swaninvesting.com/ and requires a large investment ($400K), and the other is a closed-end fund (traded on the NYSE): Eaton Vance Risk Managed Diversified (symbol: ETJ). Currently ETJ pays almost 10% dividends, which can be reinvested, but because it is a closed-end fund, it can trade either below, at, or above it’s Net Asset Value.

  11. Very cheap right now - high divs:


  12. I am mostly interested in companies that pay a stable, sustainable dividend as opposed to current high yield stock which is in danger of cutting its payment to shareholders.

  13. OK...given your stated goals, what is your approach to pruning and trading up positions within a sector? For example how do you compare such growing utilities as CPL (Brazil), and HNP (China) against your current portfolio choices? The power consumption in growing, emerging markets is 2X the GDP and the yield is right up there with your choices and arguably exceeds it.

  14. Robert,

    It's tough to evaluate international stocks which don't have a long history of raising their dividends. As I have stated above I do not chase yield. A 10% current yield is not appealing to me if it is not coupled with a long history of dividend increases and sustainability of the dividends. An increasing EPS over the past decade is important too

  15. Hi Dividend Growth Investor,

    I wanted to thank you for putting up such a great list. I have only recently become interested in investing myself and dividend investing really seems to me like the way to go.

    I was wondering what you thought about the an energy company like Royal Dutch Shell.



  16. Thanks for this list; I'm a bit surprised that MO isn't on this list; I am beginning with a similar strategy, and it forms the core of my portfolio.

  17. What am I suppose to do with the 3% dividend? Why didn't you include Altria at 7+%? Isn't this game about making money, or about not smoking...

  18. George,

    To make money in the stock market you have to balance dividend returns with capital gains. Focusing too much on the highest yielding stocks is just as dangerous as selling off 4% of your portfolio each year and relying on capital gains in retirement.

  19. DGI,

    Back in 2002 when I saw the light about the power of dividends my first investing decision was to choose between BKH(one of your choices) and MDU. I picked the latter and have been accumulating shares through a DSP ever since. I believe the decision was the right one. Total return for 3&5 year favors MDU, dividend growth 3&5 year edge to MDU and 5year payout ratio for MDU is half that of BKH. Any comments?

    Thanks for your insight!!

  20. DenverNad,

    MDU also would win over BKH for me as well.

  21. see FRO dividend history

  22. DGI, thanks for this informative post. Could i get the name of this virtual fund on marketocracy? I would like to follow it along with you.

  23. This is the website:


    However Marketocracy deducts 1.5% annually as a "management fee" for the performance of the fund.

  24. Hi DGI,

    Great Blog.

    Can you share what are your strategy to protect your portfolio against unexpected downturn? Do you hold put option contracts? Or other approach.

  25. This is a great list. Is there an updated version somewhere? MCD is over $100 now and VCF has almost tripled!

  26. I have about $82000.00 dollars in a traditional 401 K account were I am paying 0.29 for manage fees. This is not much and I have done relatively well over the last to 2 1/2 years were my portfolio was worth approximately $64000.00 dollars. But I am thinking can do better by myself minus the investment fees. I would like to pick a diversified 20 to 30 dividend stock portfolio and hold for the next 15 to 20 years. Any recommendations?

  27. Hi Dividend Growth Investor,

    I’m not sure if I do my math right, but I don’t understand how you calculate the average five year dividend growth rate 15.9% and then say it stays about 6% in calculate.

    Per example McDonald’s Corp 5 year Dividend Growth is 43.94% so it growth every year (143.94%/100%)^(1/5)-1 = 7.56% that is an amazing growth rate, but if I do this calculate with all stocks I got an average growth rate of poorly 2.86% p.a.

    Is that correct or do I miss something?

    Thanks for your help


Questions or comments? You can reach out to me at my website address name at gmail dot com.

Popular Posts