Numerous studies have shown that dividends make up a big percentage of total stock returns. Estimates suggest that stocks returned about 9.4% annually between 1900 and 2010 and that dividends made up 4.4 percentage points of this return. In other words, without dividends, total stock returns were nearly cut in half. (Explore arguments for and against company dividend policy, and learn how companies determine how much to pay out. See How And Why Do Companies Pay Dividends?)
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This data suggests that buying companies with solid and stable dividends can make a big difference in overall returns over time. Finding companies with very stable dividend policies can also help as buying-and-holding keeps trading costs and taxes low. Stock index giant Standard & Poor's keeps a list of companies that have paid dividends for 25 straight years. Its most recent list contained 42 such companies. Below is a list of 10 of them that also have businesses that can stand the test of time.
1. Brown-Forman Corp - Current dividend yield: 1.7%
Brown-Forman is a global alcohol and spirits firm that is best known for its Jack Daniels whiskey brand. Alcohol is certainly not recession-proof, but is definitely recession resistant and does have periods where demand increases when economic spirits are particularly low. High founding family ownership levels and a focus on growing its business over the long term are key reasons why growth has been steady and it has been able to pay a dividend for more than two decades.
2. Chubb Corp - Current dividend yield: 2.6%
Chubb was founded in 1882 and specializes in providing insurance for individuals and businesses. It caters to the higher end of the market and has a reputation for paying off insurance claims quickly and in full. Trust from loyal clients is a key reason it has existed for more than a century and this also helps it charge above-average premiums in many instances. Steady capital generation and conservative insurance underwriting have resulted in steady dividend payouts for shareholders.
3. Coca-Cola Co - Current dividend yield: 2.8%
Founded shortly after Chubb in 1886, Coca Cola has become one of the most valuable brands in the world. It sells its namesake soda brand as well as hundreds of other beverages in the carbonated, juice, and sports drink spaces. Its business model is also highly profitable and it has a distribution network across the globe that qualifies as a distinct competitive advantage. Steady profit generation has left more than ample room to pay a dividend for many straight years.
4. Ecolab Inc - Current dividend yield: 1.3%
Though not a household name, Ecolab is well known to businesses that use its industrial cleaning services. More specifically, it provides cleaning and sanitizing services for companies in the food, hospitality, healthcare and retail industries. A focus on cleanliness is important regardless of the economic environment and is a key reason why the company has paid dividends for as long as most investors can remember. (Seven words that are music to investors' ears? "The dividend check is in the mail." To learn more, read Why Dividends Matter.)
5. McDonald's Corp - Current dividend yield: 2.9%
McDonald's is rather young in the dividend aristocrat corporate world as it was founded in 1948. This has only made its rapid growth more impressive and it is now one of the largest restaurant chains in the world. It has paid a dividend for over 25 years now but has recently been able to boost payouts significantly by reemphasizing growth at existing stores.
6. McGraw-Hill Cos Inc - Current dividend yield: 2.4%
McGraw-Hill is best known for the Standard & Poor's unit that also publishes the above-referenced dividend track record. The stocks in the study are collectively known as the S&P Dividend Aristocrats and McGraw-Hill happens to be one of them. In addition to S&P, it owns a number of other financial services businesses, a book publishing arm and a number of television broadcast stations.
7. PepsiCo Inc - Current dividend yield: 3.0%
Pepsi is Coke's arch nemesis and it has also managed to achieve status as a dividend aristocrat. This is due both to its beverage brands but also its dominance in snack foods via Frito Lay. It owns a wide array of food and drink brands and has also developed a wide global distribution network to sell its products.
8. Procter & Gamble - Current dividend yield: 3.4%
P&G is one of the largest consumer product firms in the world. It sells beauty, health, and consumer brands including Gillette, Duracell, Tide and Head & Shoulders. These businesses are generally stable throughout any economic climate and lend themselves to steady profits that can be used to support and grow a generous dividend payout over time.
9. Sigma-Aldrich Corp - Current dividend yield: 1.0%
Like Ecolab, Sigma-Aldrich may also not be well known to consumers. However, its healthcare clients know it well as it provides chemicals and kits that are used in scientific, biotech and pharmaceutical research. A focus on consumable merchandise means repeat customers and a business that continues to grow across the world.
10. Wal-Mart Stores - Current dividend yield: 2.8%
Wal-Mart was founded in 1945 and has grown into the most dominant retailer in the world. A focus on low costs has solidified its profitability in the United States, and it is using those funds to grow internationally and also maintain and grow a nice dividend payout for shareholders.
The Bottom Line
The above firms qualify as dividend aristocrats as they have paid dividends for at least 25 years straight. They also have a good chance of continuing their payouts for many years to come and also growing them along with sales and profits. (Dividends may not seem exciting, but they can certainly be lucrative. Learn more here! Check out The Power Of Dividend Growth.)
Disclosure: At the time of writing Ryan C. Fuhrmann owned shares of McGraw-Hill but not any other company mentioned in this article.
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