Wednesday, January 19, 2011

Dividend Achievers Offer Income Growth and Capital Appreciation

Peter Lynch, the legendary manager of the Fidelity Magellan Fund has mentioned the following about dividend achievers:

"The Dividend Achievers Handbook is one of my favorite bedside thrillers. Here's a simple way to succeed in Wall Street: Buy the stocks on Mergent's list and stick with them as long as they stay on the list"

The stocks he mentions in his book, "One Up on Wall Street", is Automatic Data Processing (ADP), which incidentally has kept raising distributions 20 years after his book was published.

In fact some of the best performing stocks on Wall Street over the past decade have been the dividend achievers. Dividend achievers are companies which have increased their distributions for at least ten consecutive years. They provide a superior alternative than investing in fixed income because they provide investors with the opportunity of a rising dividend payment and they could also receiving higher total returns over time as well. The premise is that higher dividends are a direct result of rising earnings, which translates into higher stock prices. When managements boost distributions, this shows what their outlook for the business and the economy really is.

Over the past decade, the broad dividend achievers index has delivered annual total returns of 1.20%, which was better than the flat annual returns realized by the S&P 500.


Currently, there are approximately 212 stocks in the index. The ten largest holdings include:



Exxon Mobil Corporation (XOM) engages in the exploration, production, transportation, and sale of crude oil and natural gas. The company has managed to raise dividends for 28 years in a row.(analysis)

International Business Machines Corporation (IBM) develops and manufactures information technology (IT) products and services worldwide. The company has managed to raise dividends for 15 years in a row. (analysis)

The Procter & Gamble Company (PG) provides consumer packaged goods in the United States and internationally. The company operates in three global business units (GBUs): Beauty and Grooming, Health and Well-Being, and Household Care. The company has managed to raise dividends for 54 years in a row. (analysis)

Johnson & Johnson (JNJ) engages in the research and development, manufacture, and sale of various products in the health care field worldwide. The company operates in three segments: Consumer, Pharmaceutical, and Medical Devices and Diagnostics. The company has managed to raise dividends for 48 years in a row. (analysis)

Chevron Corporation (CVX) operates as an integrated energy company worldwide. The company has managed to raise dividends for 23 years in a row. (analysis)

Wal-Mart Stores, Inc. (WMT) operates retail stores in various formats worldwide. The company has managed to raise dividends for 36 years in a row. (analysis)

AT&T Inc. (T) provides telecommunication products and services to consumers, businesses, and other telecommunication service providers under the AT&T brand worldwide. The company has managed to raise dividends for 27 years in a row. (analysis)

The Coca-Cola Company (KO) manufactures, distributes, and markets nonalcoholic beverage concentrates and syrups worldwide.The company has managed to raise dividends for 48 years in a row. (analysis)

PepsiCo, Inc. (PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The company has managed to raise dividends for 38 years in a row. (analysis)

McDonald's Corporation (MCD), together with its subsidiaries, operates as a worldwide foodservice retailer. The company has managed to raise dividends for 34 years in a row. (analysis)

There are several funds focusing on the dividend achievers index. One of them is the Powershares Dividend Achievers (PFM), which will normally invest at least 90% of its total assets in dividend paying common stocks that comprise Index. This ETF has an annual expense of 0.60%.

The BlackRock Dividend Achievers Trust (BDV) is a diversified closed-end management investment company. The Trust invests substantially all, but not less than 80%, of its total assets in common stocks that are included in Indxis's universe of "Dividend Achievers". The fund follows a managed distribution policy, which include both return of capital and dividends. It also has an annual fee of 0.86%.
Because of the steep annual fees on those funds, I typically end up constructing my own dividend portfolios. In the era of low or no commission internet stock brokerages, investors could easily save on annual fees, which add up over the long run.


Full Disclosure: Long XOM, PG, JNJ, MCD, WMT, KO, PEP and CVX
This article was included in the Carnival of Personal Finance – Fun with Finance

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5 comments:

  1. Again, another great post. You continue to be a strong advocate for buying and holding U.S. dividend-payers and rightly so.

    Cheers,
    My Own Advisor

    ReplyDelete
  2. Wow !! really nice blog. It will be very useful for me. So, thanks for sharing this post.

    ReplyDelete
  3. You cannot go wrong with Johnson and Johnson and Exxon Mobil! I am also a true believer in dividend investing - it just makes sense!

    -Lanny B.

    ReplyDelete
  4. do you have recommendations for international dividend stocks?
    Inq

    ReplyDelete
  5. When managements boost distributions, this shows what their outlook for the business and the economy really is.professional resume

    ReplyDelete

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