According to a historic study conducted by Ned Davis Research, companies that either initiated or increased their dividend payout policies between 1972 and 2007 outperformed their S&P 500 counterparts with stagnant dividends by 2.2%, annually. Compounded over a 35-year span, this marginal annual contribution would increase the total portfolio return by 114%.
TUTORIAL: Managing Risk And Diversification
Not Just a Dividend
Despite the fact that dividends provide regular income to shareholders, and thus are commonly held by pension funds and other institutional investors, dividend hikes also reflect management's belief in the growing fundamentals of the company. A dividend increase often reflects improved cash-flow conditions of the firm. Therefore, looking for stable companies with a long history of dividend increases allows investors to gauge management's long-term expectations of the firm.
The following seven companies (from a wide range of industries) support strong dividend yields and have been increasing their payouts. In fact, all of the corporations mentioned below have seen their payouts grow by at least 15% over the past five years. These stocks should not only be seen as income producing instruments, but have the potential to provide long-term portfolio appreciation.
Diversified Dividend Growers
|AmBev (NYSE:ABV)||5.40||Beverages - Brewer|
|Century Link (NYSE:CTL)||6.95||Telecom Services|
|Fidelity National Financial (NYSE:FNF)||3.66||Insurance - Specialty|
|Paychex (NASDAQ:PAYX)||3.96||Staffing & Outsourcing|
|Unilever PLC (NYSE:UL)||3.70||Packaged Foods|
Quick Company Overview
AmBev is currently Latin America's largest brewer, and the fourth-largest beer producer world wide. AmBev operates with a return on equity of 29.8%, easily outpacing its competitors in its industry.
Century Link provides high-speed internet and phone line access services. Recently, Century Link merged with Qwest. The company trades at a low PE ratio of 13.3.
Fidelity National Financial is a slow growth, mid-value insurance underwriter which is slowly recovering from the credit crisis. Fidelity National Financial is trading at below book value.
With over 32,700 locations in 117 countries, McDonald's is one of the most recognized brands in the world. The company has been growing earnings recently at the rate of a start-up.
Nucor is the largest scrap metal processor in the U.S. The company has been steadily growing its focus on exports in order to diversify its business portfolio.
Paychex has been extremely successful in providing payroll outsourcing services to small and medium sized businesses. Due to the minimal capital requirements, Paychex rewards investors with a 35.7% return on equity.
Unilver sells everyday-consumer products in over 170 countries. The company currently trades at only 14.8 times earnings, despite its high margins.
The key to selecting dividend stocks is not only to choose those that offer the highest yields, but to analyze the fundamentals of the company as well. Long-term dividend growth is another essential component to developing the full story. (So you've finally decided to start investing. But what should you put in your portfolio? Find out here. Check out How To Pick A Stock.)
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