For decades, blue chip companies with high dividend yields have been affectionately referred to as "widow and orphan" stocks because they represented mature, established companies that paid reliable dividends that widows and orphans could rely upon to provide them with a steady income.

Utility companies and industrial conglomerates are often placed in this category, but almost any large-cap company that has paid a sizable dividend consistently over the years can probably be counted on to continue doing so. (To learn more about the benefits of dividends, check out Dividends Still Look Good After All These Years).

Dividends Don't Rock The Boat
And investing in dividend-paying stocks definitely has its advantages. After all, stocks with high dividend yields generally offer more downside risk protection than growth stocks. This is because the steady cash payout these stocks provide give investors peace of mind when the going gets rough. Dividend-paying stocks typically do not fall as fast or as far as high-flying growth stocks (that typically lack a regular dividend payout) when the market turns south. (For more on this, check out How Dividends Work For Investors.)

So, if you are looking to beef up your portfolio with some dividend darlings, usually the best place to start hunting is with stocks that have paid out increasing dividends consistently over a period of years. Generally speaking, the longer a company has paid out a high dividend yield, the more likely it is to continue doing so in the future.

With that in mind, here are five stocks with sizable current dividend yields that have a history of strong dividend growth as well.



CompanyDividend YieldMarket Cap
American Capital
(Nasdaq:ACAS)
19.4%$4.31B
BP Prudhoe Bay
Royalty Trust
(NYSE:BPT)
14.7%$1.78B
Permian Basin
Royalty Trust
(NYSE:PBT)
13%$1.01B
Diamondrock Hospitality
(NYSE:DRH)
10.99%$852M
Baytex Energy Trust
(NYSE:BTE)
10.26%$2.51B
Data as of market close July 25, 2008


Permian Basin Royalty Trust
A royalty trust is basically a corporation that distributes a high percentage of its profit to the shareholders to avoid double taxation on corporate income. They usually involve cash-flow producing assets such as mining or oil and gas production.

Permian Basin Royalty Trust is based in Dallas, Texas, and receives its revenue primarily from gas and oil produced from royalty properties and Waddell Ranch both located in Texas. PBRT's dividends can add a cash flow to your investment portfolio. Also, the dividend is paid out monthly, which is a bonus.



Distribution History
YearDistribution per unit
20071.4507
20061.4101
20051.3360
20040.9558
20030.6890


In 2007 January to July, PBRT paid a total of $0.5736. Total 2008 distributions including July are $1.3723. Here is a breakdown:



2008 Record DateDistribution
January, 31$0.184
February, 29$0.193
March, 31$0.183
April, 30$0.178
May, 30$0.202
June, 30$0.198
July, 31 (announced)$0.235


The Trust linked the increase in payments to favorable commodity prices but not in increased sales. Net trust sales in oil and gas are down from last month to the current month, but average selling price is way up. Permian Basin Royalty Trust increased its average selling price for oil 18% from $103.89 to $123.25 per barrel. Average selling price for gas shot up 30% from $10.81 to 14.07 per 1,000 cubic feet. That translates to more cash in holders' pockets.

Here Today, Gone Tomorrow?
Despite the cliché, you don't have to be a widow or an orphan to appreciate the staying power dividend-paying stocks can add to your portfolio over the long haul. A portfolio of stocks with high dividend yields may experience less price volatility than a portfolio built entirely of sexy growth stocks. It is important to note, however, that a regular dividend will only help to keep a stock's price stable as long as the dividend payment keeps getting paid out. If a company decides to decrease its regular dividend amount, or cease it altogether, a stock that was once considered a dividend darling can easily take a nasty tumble. (To learn more, check out Is Your Dividend At Risk? )

What do you think of dividend investing, specifically investing in royalty trusts? Join me (PeterAB) in the FREE Stock Picking Community to share your thoughts and see what other investors are saying.



Filed Under:
Tickers in this Article: ACAS, BPT, PBT, DRH, BTE

comments powered by Disqus

Trading Center