Wednesday, October 27, 2010

Dividend Stocks for the next decade and beyond

Some of the best dividend stocks in the world are characterized by strong competitive advantages, which have allowed them to charge premium prices for their recognizable brands, which in turn have translated into rising profits. Most of those companies are also characterized by high returns on invested capital, which means that they generate more capital than they could successfully reinvest back into the business and still retain their high returns. As a result these companies manage to provide an ever increasing stream of dividend income to their long-term shareholders. While stock prices move higher during bubbles and lower during recessions, investors keep getting paid for holding their stocks. In fact, because dividends keep getting increased, some early investors in companies such as Abbott (ABT) have managed to generate mind-boggling yields on cost of their original investments. These early investors understood very well that a dividend payment should not come at the expense of growing the business and vice versa. While their stocks have typically been characterized by yields similar to those of the market, their dividend growth component has more than paid back for itself.

While dividend growth investing has been hugely successful for many investors, it is very important to understand that it could be profitable for future investors as well. The stocks which have had long histories of rising dividend payments are frequently found in such lists as the S&P Dividend Aristocrats or Mergents’ Dividend Achievers. These stocks are a strong example of newton’s law of physics that a body in motion keeps getting in moition.

The following six stocks have not only delivered consistent annual dividend increases to shareholders, but also above average capital gains over the past decade as well. The companies include:

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company is also a dividend aristocrat, which has been consistently increasing its dividends for 48 consecutive years. Over the past decade, the company has managed to increase dividends by 13.50% annually. Yield: 3.40% (analysis)

Abbott Laboratories (ABT) engages in the discovery, development, manufacture, and sale of health care products worldwide. The company is also a dividend aristocrat, which has been consistently increasing its dividends for 38 consecutive years. Over the past decade, the company has managed to increase dividends by 9% annually. Yield: 3.40% (analysis)

McDonald's Corporation (MCD), together with its subsidiaries, operates as a worldwide foodservice retailer. The company is also a dividend aristocrat, which has been consistently increasing its dividends for 34 consecutive years. Over the past decade, the company has managed to increase dividends by 26.50% annually. Yield: 3.20% (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company is one of the most respected dividend aristocrats, and has consistently increased dividends for 54 years ina row. Over the past decade, the company has managed to increase dividends by 10.70% annually. Yield: 3% (analysis)

Sysco Corporation (SYY), through its subsidiaries, markets and distributes a range of food and related products primarily to the foodservice industry in the United States. This dividend champion has increased distributions for 40 years in a row. Over the past decade, the company has managed to increase dividends by 17% annually. Yield: 3.40% (analysis)

Chevron Corporation (CVX) operates as an integrated energy company worldwide. This dividend achiever has consistently raised distributions for 23 years in a row. Over the past decade, the company has managed to increase dividends by 8.30% annually. Yield: 3.40% (analysis)

The companies mentioned above are just a few of the best dividend stocks that could be found today. In order to be successful in dividend investing, one has to not only pay the right price for the right company, but also build a diversified income portfolio.

Relevant Articles:

- Dividend Investors are getting paid for waiting
- Strong Brands Grow Dividends
- Why Dividend Growth Stocks Rock?
- Seven dividend aristocrats that Buffett owns

3 comments:

  1. One question I have when it comes to looking at these companies with the long histories of dividend growth, is for how much longer the growth can be sustained. At what point is a company so large that it's just not possible to sustain growth year after year? Strong brands, moats, pricing power, etc. should eventually lose out to sheer size, as an incremental 1% revenue growth becomes enormous in absolute terms. IMO, it boils down to how well the company can reach new customers in untapped markets/markets. It is specifically that question which gives me pause about a business like WMT's. Does the WMT model transition well to other countries/cultures?

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  2. Good post. I hope to own them all someday :)

    @Anonymous - I have the same thoughts now and again. You can only get so big and stay # 1 so long, e.g., WMT.

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  3. Any chance of seeing a list of Canadian dividend growth stocks? I ask as there is a withholding tax in Canada if we invest in US dividend stocks.

    Thanks again.

    ReplyDelete

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