One of my favorite stock lists that includes quality dividend stocks is the Dividend Aristocrats list, maintained by Standard & Poors. In order for a company to qualify for membership in this elite group it has to have increased its dividend payments to shareholders for at least 25 consecutive years.
The typical dividend aristocrat is a mature company that has weathered the storms of many boom and bust cycles while continuing to increase dividend payments to shareholders. These companies as well as the dividend champions are the cornerstone to my dividend growth strategy. Although the list as a whole yields a little bit better than the overall market represented by the S&P 500, there are some hidden gems which have consistently achieved an above average dividend growth rate. A company which has a 12% dividend growth would double its dividend payment in 6 years. Thus if this stock has a dividend yield of 2% right now, 6 years from now the yield on cost would be 4%. If the dividend payment keeps growing at the same growth rate, the yield on cost would be close to 12% in twelve years after the initial investment. In order to find such stocks, I researched the dividend aristocrats and selected the 20 stocks with the highest dividend growth for the past 10 years. (Period ending in 2007). You could also open the spreadsheet from here.
Just because the dividend growth rate for a particular stock is not in the double digits does not automatically mean that the stock is not a buy and vice versa. It all depends on your investing goals and experience. If you are a retiree looking for another source of income then the higher yielding slower growing dividend stocks like ED or TEG would constitute the majority of your portfolio. However if you are not going to tap your dividend income for one or two decades then the lower yielding high dividend growth stocks will have a higher weight in your income portfolio.
The only thing that is constant of course if change, thus a company which is rapidly growing its dividends might not grow them at such a fast rate in the future or might even consider cutting the payments to shareholders and vice versa. Thus, a successful dividend investor would construct a portfolio that is a blend of higher yielding and lower yielding dividend stocks, growing their payments at varying rates.
Full Disclosure: Long MCD, WMT, MTB ,ADP, JNJ, SHW, ED
Relevant Articles:
- The Rule of 72
- Why do I like Dividend Aristocrats?
- Long term returns of S&P high-yield aristocrats
- Dividend Conspiracies
Popular Posts
-
The S&P Dividend Aristocrats index tracks companies in the S&P 500 that have increased dividends every year for at least 25 years ...
-
The past month has been difficult for many investors. Stocks are down by 30% from their all time highs, reached just 1 month ago. It is duri...
-
I wanted to share an insightful commentary from a friend of the blog, Joe Ferris, who is a Registered Investment Advisor at Summer Fields In...
-
“In the short run, the market is a voting machine but in the long run, it is a weighing machine.” ― Benjamin Graham The price of securit...
-
Last year marked a record in earnings and dividends for US companies. The S&P 500 index ended up distributing a record number of dividen...
-
As part of my monitoring process, I review the list of dividend increases every week. With the current Covid-19 crisis , companies are cons...
-
Last week was a crazy week in the US Stock market, as the number of Covid-19 cases in the country surged, and so did the number of deaths. I...
-
As part of my monitoring process, I review the list of dividend increases every week. This is helpful in monitoring dividend increases for ...
-
As part of my monitoring process, I review the list of dividend increases every week. This helps in identifying dividend increases for the ...
-
I originally wrote this article in July 2008. At the time, S&P 500 had just gone into bear market territory from its highs just 9 months...
