Investing in stocks that pay dividends certainly has its advantages. In an uncertain economic climate, stocks with a consistent history of dividends offer investors something steady to which to anchor their portfolio. This is because with these types of income stocks, the downside protection is generally better when compared to growth stocks - these stocks are typically not as unpredictable as growth stocks when the going gets rough.
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Historically, utility companies and large conglomerates, such as General Electric (NYSE:GE), for example, were considered the staples of any good income portfolio. However, nearly any large blue chip company that has a solid history of growing earnings and dividends can be a good addition to an income portfolio.
Be Careful of High Yields
It is also prudent to note that, when looking for dividend stocks, investors should be wary of stocks with abnormally high dividend yields. These type of yields are almost never sustainable, and the risk of the stock taking a nosedive if the company reduces its dividend amount unnecessarily endangers your investment. Stick to what has worked historically, and try to resist the temptation of double digit yields.
With that said, here are some ideas of stocks with a good current and projected dividend yield that also have a strong history of growing earnings and dividends:
|Johnson & Johnson||JNJ||3.44%|
|Procter & Gamble||PG||3.03%|
|data as of December 15, 2010|
One of the more intriguing companies on the list, in terms of business consistency, is Abbott Laboratories. At the beginning of the decade, Abbott paid a dividend of 74 cents on earnings per share of $1.78. Slowly and steadily through 10 years, Abbott grew the dividend to $1.68 on earnings per share of $3.05. This works out to a 10-year average growth rate in earnings per share of just over 12%, a very impressive track record. Currently, the stock trades with a P/E valuation of about 15.7, slightly above the industry average, but significantly below Abbott's five-year P/E average of 23.7. This may be one of the more attractive companies on the list to consider for your portfolio and do further research on.
The Bottom Line
With the current unattractive yields in the bond market, the natural transition for income investors is towards equities. And in order to maintain a degree of consistency and safety, investors should consider stocks with a strong history of dividend payments and growth. (To learn more about the benefits of dividends, check out Dividends Still Look Good After All These Years.)
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