Reliable dividend growth is the name of the game.
When investors look for stocks paying dividends, sometimes they fall into the trap of simply picking a big dividend yield. However, chasing yield can have its flaws. You have to hold a stock for 12 months to get the full annualized dividend yield — and a lot can happen in that period, including potential reductions to payouts or severe declines in stock price. A better strategy for many investors over the long term is to hold a stable stock that continues to grow its dividend consistently. These dividend growers may not offer the biggest yield, but they do offer the potential of steady increases in payouts and a lot of consistency as a result.
CVS Health Corp. (ticker: CVS)
Health giant CVS saw some downward pressure in the wake of a massive $69 billion bid for health insurer Aetna (AET) in March. However, shares have bounced back recently with the stock up about 25 percent from those spring lows on increased optimism about the long-term prospects of this giant that is increasingly a one-stop shop for all things in health care. For income investors, the dividend is nice but the long-term history of increases is even better. CVS pays a current rate of $2 annually per share, an extraordinary increase over the 28 cents it paid in 2008.
Current yield: 2.7 percent
Microsoft Corp. (MSFT)
Software giant Microsoft has been on a tear in the last few years, with its stock tripling since 2013 thanks to the shrewd leadership of CEO Satya Nadella. A new focus on cloud computing and a rejuvenation of the brand has helped propel this tech giant to new all-time highs like clockwork. The dividend has kept pace with that sharp upward climb, too. Though a relatively new kid on the dividend block, tech giant Microsoft has wasted no time showing how generous it can be with payouts; dividends were 52 cents in 2008 and are currently pacing an annual rate of $1.68.
Current yield: 1.6 percent
Starbucks Corp. (SBUX)
The big run-up in Microsoft stock has admittedly caused investors to pay a premium for shares and depressed its dividend yield as a result. So if you’re interested in a bigger yield, consider SBUX stock, which has pulled back recently on concerns that its high-growth days may be behind it now that the corporation is some $70 billion in valuation and sales trends are plateauing. It’s easy to understand why growth is slowing, since the chain is pretty much everywhere. That may not allow for much in the way of future growth, but does provide a stable revenue stream that fuels growing dividends.
Current yield: 2.7 percent
Procter & Gamble Co. (PG)
Consumer staples giant P&G is one of the most stable dividend payers on the planet thanks to its powerful brand portfolio. Among the items marketed by this company are Bounty paper towels, Crest toothpaste, Downy fabric softener and Gillette shaving products, to name a few. Like SBUX, there may not be breakneck growth ahead for this mature corporation. But that doesn’t mean dividends can’t grow, as evidenced by the fact that P&G has roughly doubled its dividend payouts since 2008.
Current yield: 3.4 percent
Home Depot (HD)
There were some concerns about the housing market earlier this year that weighed on this home improvement giant, but that’s all changed. After a stellar earnings report in August that topped expectations and included an increase to forward guidance, HD stock is back on track and within range of a new all-time high once again. In addition to the success of the stock, dividend investors have been richly rewarded in recent years. Payouts have surged from 90 cents annually in 2008 to a current rate of $4.12.
Current yield: 2.1 percent
UnitedHealth Group (UNH)
While there has been plenty of uncertainty around health care policies in the last few years, particularly the fate of the Affordable Care Act, the one thing that has been certain is the profitability of insurance giant UnitedHealth. Like it or not, America remains a for-profit health care system and this $250 billion company is at the center of the health care industry. Its low relative payout is a product of stellar stock performance; shares are up about 270 percent in the last five years. Of course, dividends have also kept pace as quarterly distributions have roughly tripled in the same period from 28 cents in 2014 to 90 cents at present.
Current yield: 1.4 percent
Texas Instruments (TXN)
Chipmaker Texas Instruments isn’t exactly a flashy tech stock, making the processors and components that go in other devices. In fact, many consumers may not even know they are using a product with this company’s microchips in it. But given that everything from refrigerators to thermostats now demand high-powered processors, business is good for Texas Instruments despite its relatively low profile. TXN shares paid just 10 cents per quarter in dividends about 10 years ago, and now pays shareholders 62 cents quarterly — a massive increase that is matched by few companies on Wall Street.
Current yield: 2.3 percent
Illinois Tool Works (ITW)
An under-the-radar stock, ITW is not exactly a household name thanks to its relatively boring business manufacturing fasteners and other equipment. However, being a specialized company does have its upside since share prices have been relatively stable and competition hasn’t created much of a problem over the last several years. Income investors tend to not be that concerned with share price, anyway, and instead focus on the potential growth in dividends. On that front, ITW’s performance is amazing as payouts have grown from $1.18 in 2008 to a current annual pace of $4 per share.
Current yield: 2.9 percent
Aflac (AFL)
Many Americans are now familiar with this insurance company thanks to its commercials with a rather irreverent duck. However, Aflac is more than just a firm with quirky marketing. Valued at over $35 billion and growing, its growth is particularly appealing right now as interest rates rise, allowing Aflac to reinvest the premiums from customers in low-risk, interest-bearing assets at a better return than in years past. Payouts have surged in the last decade from total distributions of 48 cents back in 2008 to an annual pace of $1.04. Given the rising rate environment, that dividend growth should continue.
Current yield: 2.2 percent
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9 Solid Stocks Growing Their Dividends originally appeared on usnews.com
