Two and a half decades of annual dividend increases earns a company the title of dividend aristocrat. Most companies never come close, but a rare few manage to join this exclusive club. Here's why International Business Machines (NYSE: IBM) , Nu Skin Enterprises (NYSE: NUS) , and Realty Income (NYSE: O) all have the potential to be the next dividend aristocrat.
Closing in on 25 years
Tim Green (International Business Machines): With 21 consecutive annual dividend increases under its belt, IBM is nearing dividend aristocrat status. Another dividend hike is likely in the coming months, which will bring the streak up to 22 years. If all goes well, IBM will join the dividend aristocrat club in 2020.
The odds of continued dividend increases for IBM look a lot better today than they did a couple of years ago. Revenue and profit have been falling in recent years as IBM works to transform itself, shedding and de-emphasizing legacy businesses and investing heavily in growth areas like cloud computing, analytics, and security. A lot of progress has been made, but until the company's fourth-quarter report last month, it wasn't clear if IBM would ever turn the corner.
The stock's current annualized dividend yield is 4.2%, making it a great choice for income-oriented investors. But investors have not had to sacrifice total capital appreciation for Realty Income's wonderful dividend track record and juicy yield. The stock has returned 248% over the 10-year period through Feb. 9, crushing the S&P 500's return of 97.6% over this period.
Realty Income's long-term success can be attributed to its use of long-term, triple net leases (tenants pay variable costs, such as maintenance and insurance); tenant diversity; geographic diversity (it has properties in 49 states plus Puerto Rico); and focus on stable tenants. The company targets tenants whose operations insulate them from online competition, such as movie theaters and other service-based business, or that are quite immune to economic downturns because they sell non-discretionary items (such as pharmacies).
All of the above factors add up to a rock-solid portfolio with enviable occupancy rates and limited turnover, and that generates a predictable income stream.
10 stocks we like better than IBM
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has tripled the market.*
David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now...and IBM wasn't one of them! That's right -- they think these 10 stocks are even better buys.
Click here to learn about these picks!
*Stock Advisor returns as of February 6, 2017.
Beth McKenna has no position in any stocks mentioned. Rich Duprey has no position in any stocks mentioned. Timothy Green owns shares of IBM. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .