For investors that count on dividend payments to cover their
living expenses, the prospect of a dividend cut can create real
headaches. That's why some investors own only the
income-producing stocks that have never cut their dividend.
It's easy to find such companies. Product planners at Standard
& Poor's track a group of these steady Eddies in a category
. These are companies that have raised their dividend for at
least 25 straight years. Right now, there are 55 companies that
hold that distinction, as all of them managed to boost their
payouts -- even during the economic meltdown of 2008 and
#-ad_banner-#To be sure, some of these Aristocrats haven't
showered a great deal of attention on their dividends in recent
years. Take steelmaker
as an example. Nucor's dividend stood at $1.44 in 2010 and has
risen exactly one penny every year since. It's almost as if the
dividend hikes are a mere token gesture as a way to maintain the
As we've noted here at StreetAuthority on a number of
occasions in the past year, investors can no longer focus simply
on a dividend yield but must instead focus on dividend growth.
Companies that will boost their dividends at a decent annual clip
will stay ahead of the curve as the Federal Reserve starts to
allow interest rates to rise.
Most of the 55 Aristocrats seem to be boosting their dividends
at a 5% to 6% clip these days (though can offer up enticing Total
Yields through share buybacks and debt reductions). Only a
handful of companies -- nine of them, to be exact -- can be
considered to be great dividend growth stocks. All of them have
boosted the payout by at least 10% in each of the past three
These companies have been sharply boosting dividends for a
pair of reasons: Cash flow has been growing at a solid clip,
had been quite low but are beginning to rise.
Of course, if the payout ratios were so low that the dividend
payments implied skimpy yields, then income-seekers aren't really
interested. Here's a look at those nine companies in the context
of their dividend yields.
To be sure, none of these stocks sport eye-popping yields.
recent cyber-security woes means you shouldn't expect much
dividend growth in 2014.
But what about the rest of the pack? The ones that should hold
the greatest appeal are the companies that still have payout
ratios below 40%. That means that a modest rise in cash flow,
coupled with a boost to the payout ratio, can translate into
sustained strong dividend growth.
Notably, the Aristocrats with the highest current yields also
have fairly high payout ratios, which means their dividends are
only likely to grow in the future at a pace in line with cash
W.W. Grainger (NYSE:
have room to boost their payout ratios. Intriguingly, all three
companies are poised to benefit from an eventual upturn in
construction spending in particular, or capital spending in
general, as the economy strengthens.
The key takeaway: These firms boosted their payouts at a
double-digit pace in each of the past three years and have a good
shot at repeating that performance over the next three years as
Risks to Consider:
A reasonably supportive economic backdrop has given these
firms the confidence to boost their dividends at a solid pace,
though it's too soon to know if the economy will continue to
justify continuing confidence, as 2014 has gotten off to a slow
Action to Take -->
The Dividend Aristocrat investment theme has resonated with
investors, especially after certain companies proved their mettle
during the financial crisis and ensuing economic doldrums. T
Though I've focused on companies in the group with the most
robust dividend growth, investors can also focus on slower
growers that have the best yields by investing in the
SPDR S&P Dividend ETF (NYSE:
. Though the exchange-traded fund (
) has moved in lockstep with the S&P 500 throughout the
market rebound, it is likely to hold up better in a market
pullback, thanks to the defensive nature of high-yield
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