Wednesday, April 14, 2010

16 Quality Dividend Stocks for the long run

The dividend yield on the S&P 500 has been declining throughout 2009, amidst one of the worst years for dividends since 1955. Back in late 2008 and early 2009, yields on major market indices exceeded 3%. Currently the dividend yield on the S&P 500 is 1.70%. However, if we remove the negative yield effect of non-dividend payers in the index, the dividend yield increases to 2.30%.

In order to be flexible in this market and not limit myself only to higher yielding stocks with disappointing dividend growth prospects, I am considering lowering my entry yield criteria to 2.50%, down from the 3% which was in effect since the end of 2008. As long as the selected companies for purchase have long histories of consistent dividend raises in addition to having good prospects for future dividend growth, my yield on cost would keep on increasing over time.

The screening criteria applied toward the S&P Dividend Aristocrat index was:

1) Current yield of at least 2.50%
2) Dividend payout ratio no higher than 60%
3) Price/Earnings Ratio of not more than 20
4) 25 years or more of consecutive dividend increases

These investment ideas are only the beginning blocks of a sustainable dividend portfolio. Investors should strive to maintain a dividend portfolio consisting of at least 30 individual securities representative of as many sectors as possible. The process of building a dividend portfolio is long, as it takes time to find enough qualified candidates for further research. As a result investors should consistently apply their screening method under all market conditions, in order to take advantage of market opportunities, and include enough of the best rising dividend stars available.

Full Disclosure: Long all stocks mentioned above except LLY and VFC

This article was included in the Carnival of Personal Finance #253 (Demotivational Version)

Relevant Articles:

- Dividend Aristocrats List for 2010
- Emotionless Dividend Investing
- Yield on Cost Matters
- The Dividend Edge


  1. Good list.

    CINF is one in particular that I've been looking at lately. I decided to go with HGIC instead (another insurer), as I liked their conservative collection of assets, but most importantly because while their dividend yield is lower than CINF, their recent increase was much larger. CINF still looks pretty good to me, though.

  2. Great list, thanks! Several of those were on my watch list... all of them now are.

    It would of been nice to own these from the start of their dividend spree... That being said, have you ever given a thought to searching out companies who've recently (<5yrs) started paying dividends with a steady payout ratio? The future is impossible to predict but with a long term focus finding these needles in the haystack might payoff in spades. Thoughts? SBUX seems like a contender to me...

  3. I'm surprised Coca Cola (KO) is not on this list. What criteria did they fail?

  4. Yes that`s true, Coke is one of my favorite dividend-stock...

    Look here:

    Coca-Cola Is the Type of Stock Dividend Growth Investors Seek

  5. Excellent list. One cautionary note: it has been more than a year since last LLY increased their dividend.

  6. This list is just for illustrative purposes only.

    KO was not included because its payout ratio was a little bit above 60%. I guess using mechanical rules does have its short comings. Other than that I do find KO to be a great company.

    LLY is a little bit questionable, as it failed to boost distributions in December. I am not comfortable holding on to pharmaceuticals right now, as most face steep patent expirations cliffs over the next 2-4 years. Most pharma companies are growing through acquisitions, not through R&D discoveries.

  7. I've had my eyes on pepsi for a while now. Not only am I total soda fiend myself, but their stock looked incredibly conservative. Fantastic for a dividend growth approach.

  8. With Walgreens now discontinuing Caremark (CVS) prescriptions I think that ESRX-Express Scripts is a great play right now. Since the announcement it has gone up almost every day for the last few weeks.

  9. Is stocks for the long run a safe strategy for retirement savings?


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