Let’s illustrate this with an example. Abbott Labs (ABT) is a dividend aristocrat which has raised distributions for 37 years in a row. It yields 3% right now, but has a ten year dividend growth rate of 9%. At this rate the company would double its dividend every 8 years. The growth has slowed over the past decade however – since 1983 the dividend growth was almost 13.1% per annum. The stock yielded 2.2% in 1983, which was hardly under the radar of any yield chaser. In fact the current yield at year-end for Abbott fluctuated between a low of 1.20% in 1998 and a high of 2.89% in 2009. The visionary investor who purchased Abbott at the end of 1983 achieved a yield on cost of 10% in 1992 in addition to holding onto a five-bagger. Twenty six years later this investor would have achieved a yield on cost of 55%, which is something that even the highest yielding stock out there cannot match.
Other companies which have a long history of raising dividends while also delivering a strong dividend growth, plus being attractively valued at the moment include Johnson & Johnson (JNJ) and Clorox (CLX).
Johnson & Johnson (JNJ) has raised distributions for 47 years in a row. The company has achieved a 10 year dividend growth rate of 13.30%. The latest dividend increase was 6.50% in 2009. The dividend payout ratio is at 43%, which makes it adequately covered. Check my analysis of the stock.
Clorox (CLX) has boosted dividends for 32 consecutive years. The company has achieved a ten year compound dividend growth rate of 9.60%. The company last raised its payout by 8.7% in 2009. Its dividend payout is at 50% right now, which means that the dividend is well-covered from earnings. Check my analysis of the stock.
Full Disclosure: Long ABT, CLX and JNJ