One of the reasons why investors are attracted to dividend paying stocks is the consistency in the amount and timing of dividend payments. Unless companies are operating in a challenging economic environment, a portfolio of well chosen blue chip dividend stocks should be able to provide a stable dividend stream of cash in investors’ brokerage accounts, which should also grow over time. Unfortunately, the rate of growth in distributions can vary significantly depending on a variety of factors, including corporate policy and overall state of the economy to name a few.
Companies do not increase dividends at the same rate every year. This is true, even for corporations which have managed to build long records of consecutive distributions increases. Each year, Boards of Directors convene in order to determine the near-term outlook for the business, as well as long-term strategic plans such as capital expenditures, acquisitions, divestitures and strategy. Nobody has a better gauge of the pulse of the business than management. As a result, after all is set and done, the board allocates a certain portion to dividends. Depending on various factors, the distribution could grow at differing rates or it could even be decreased or completely eliminated.
This is particularly true when looking at the historical dividend growth of such otherwise outstanding dividend aristocrats like PepsiCo (PEP), Emerson Electric (EMR), McDonald’s (MCD) and 3M (MMM).
Over the past decade, PepsiCo (PEP) has managed to boost annual distributions by 13.30% per year. The rate at which annual dividends increased ranged from a low of 3.50% in 2002 to a high of 20.54% in 2007. Between 1998 and 2002, PepsiCo’s distributions increased by 4% per year, followed by a 5.10% increase in 2003, before resuming their increase at double digit rates of growth. The company has boosted payouts for 41 years in a row and currently yields 3.10%. (analysis)
Over the past decade, McDonald’s (MCD) has managed to raise dividends by 27.40% per year. The rate at which annual distributions were raised ranged from a low of 4.40% in 2002 to a high of 70.20% in 2003. Between 2000 and 2002, McDonald’s distributions increased by less than 5% per year. The 70% distribution hike in 2003 started a trend of strong dividend growth. The company has boosted payouts for 35 years in a row and currently yields 2.90%.(analysis)
3M (MMM) has a ten year average dividend growth rate of 6.20% per year. The company’s dividend growth has oscillated between a low of 2% in 2009 to a high of 16.70% in 2005. The company is one of a dozen or so corporations in the world which have managed to boost dividends for over half a century. The slow distributions growth has lead to a decrease in dividend payout ratio, which increases the odds that higher dividend growth will be in place within a few years.The company has boosted payouts for 54 years in a row and currently yields 2.70%.(analysis)
Just like 3M (MMM), Emerson Electric (EMR) has managed to boost distributions for over half a century. Over the past decade, the company has managed to boost distributions by 6.40%/year. The company raised distributions by 1.40% in 2002 and 2003, which was followed by faster dividend growth through 2009. After that the company managed to boost annual distributions at a rather anemic 2%. The reason for decline in distribution growth was mostly due to weakness from its business segments, due to the tough economic position of the world economy. The company has boosted payouts for 55 years in a row and currently yields 3.30%.(analysis)
In general, there is variability between dividend growth rates in different years. Good years are followed by slow years and vice versa. At the end of the day however, future dividend growth will depend on the long-term success of the company. By properly executing its strategy, a company should be able to generate a sufficient amount of profits in order to grow and paying a higher dividend to its loyal shareholders.
Full Disclosure: Long EMR, MCD, PEP, MMM
- Eleven Dividend Kings, Raising dividends for 50+ years
- Build your own Berkshire with dividend paying stocks
- Should income investors worry about higher dividend taxes?
- Dividend Stocks for Inflation Adjusted Income Stream of Income
One way to monitor dividend growth investments is by checking the weekly list of dividend increases. I also find helpful to monitor the an...
As I explained in my article on my dividend retirement plan , I invest in blue chip dividend stocks which can afford increase dividends for...
This is a guest post from Tawcan, who writes about dividend investing and financial independence on his blog at tawcan.com When it comes t...
While I am a buy and hold passive investor, I also try to regularly monitor the companies I own . I usually review the investments I have ma...
Successful investing is simple. You live within your means, save money regularly and invest it. You buy a collection of quality businesses a...
This is a guest post written by Todd Wenning, CFA, who is an equity research analyst. Todd is the author of Keeping Your Dividend Edge: Str...
The daily life of dividend growth investor Successful investors buy stock in companies which are within their circle of competence. This c...
PepsiCo, Inc. (NYSE:PEP) manufactures, markets, and sells various foods, snacks, and carbonated and non-carbonated beverages worldwide. The ...
Johnson & Johnson (NYSE:JNJ), together with its subsidiaries, is engaged in the research and development, manufacture, and sale of vario...
Diageo plc (DEO) produces, distills, brews, bottles, packages, and distributes spirits, beer, wine, and ready to drink beverages. This inter...