When it comes to dividends, investors either immediately grasp the concept or dismiss it altogether. After all dividend payments are more stable than price returns. In addition to that, dividends have accounted for 40% of average annual total returns since the 1920s. Reinvested dividends on the other hand have accounted for over 90% of total stock market returns since 1871. As a result, it is no surprise that income investing is gaining support at a time when stock markets have been mostly flat for over a decade.
Back in 2009 several stock bloggers and I chose four stock picks each in a friendly stock contest. The companies I selected have low earnings volatility and as a result have stable dividend payments. In addition to that, the four companies were representative of four sectors of the economy – real estate, tobacco, utilities and energy. The companies include Realty Income (O), Con Edison (ED), Philip Morris International (PM) and Kinder Morgan Energy Partners (KMP).
Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets in North America. This dividend achiever has raised distributions to unit holders for fourteen consecutive years. The last distribution increase occurred in 2010, when this master limited partnership increased quarterly distributions from $1.05 to $1.07/unit. Yield 6.50%. (analysis)
Realty Income Corporation (O) engages in the acquisition and ownership of commercial retail real estate properties in the United States. This dividend achiever has raised distributions for sixteen consecutive years. Since the end of 2009, Realty Income has raised distributions from 0.1426875/share to 0.1433125/share. Yield 5.50%. (analysis)
Consolidated Edison, Inc., (ED) through its subsidiaries, provides electric, gas, and steam utility services in the United States. This dividend aristocrat has raised distributions for 36 consecutive years. Earlier this year the company raised distributions from 59 cents/share to 59.5 cents/share. Yield 5.40%. (analysis)
Philip Morris International Inc. (PM), through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. The company has increased dividends twice since the spin-off from Altria (MO) in 2008. The last dividend increase was announced in September 2009. Yield 5.00%. (analysis)
The above mentioned stocks are good additions for current income. They should only be a part however of a diversified income portfolio, whose goal would be to produce income until the dividend growth component of the portfolio kicks in and starts generating enough cash flow. I would expect slow distribution growth from these stocks over the next few years.
Overall, this portfolio has achieved a 6.39% total return so far in 2010. I outperforming the stock selections of the other market newsletters for a second quarter in a row. (see results below)
Dividend Growth Investor: 6.39%
My Traders Journal: -11.90%
Where does all my money go: -14.16%
Zach Stocks: -17.24%
Intelligent Speculator: -19.06%
Four Pillars: -20.11%
The Financial blogger: -22.65%
Million Dollar Journey: -23.65%
The lesson to learn is that "boring" dividend stocks are less volatile in comparison to the overall market. The regular dividends paid also make shareholders hold on to their shares through thick and thin, without panicking. As long as dividends are being paid, income investors realize a positive return even in a flat or down market.
Full Disclosure: Long all stocks mentioned above
- Top Dividend Stocks for 2010, 1Q update
- 2010’s Top Dividend Plays
- Best High Yield Dividend Stocks for 2009
- Five Consumer Stocks for 2010
One of the advantages of being a dividend investor is that I invest in businesses that meet a certain qualitative and quantitative criteria...
I like to invest in quality companies, with an established track record of dividend increases. I want to acquire these quality companies at ...
This guest post has been written by Mike McNeil, passionate investor, founder of Dividend Stocks Rock and author of The Dividend Guy Blog ...
A dividend king is a company that has managed to increase dividends every single year for at least 50 years in a row. There are only 20 com...
I wanted to thank you all for reading the Dividend Growth Investor website. This site is a result of my efforts to improve my investing over...
Another year has passed here in dividend growth investing land. This was a year with a lot of changes for me. It is time to evaluate what ha...
Today marks the ninth birthday of the Dividend Growth Investor blog. It is unreal that I have managed to keep this up for 9 years in a row. ...
CVS Health Corporation (CVS), together with its subsidiaries, provides integrated pharmacy health care services. It operates through Pharmac...
The J. M. Smucker Company (SJM) engages in manufacturing and marketing branded food products primarily in the United States, Canada, and int...
Medtronic, Inc. (MDT) manufactures and sells device-based medical therapies worldwide. This dividend champion has paid dividends since 1977...