6 Stocks With 50 Years Of Consecutive Dividend Raises

Christian Hudspeth's picture

Tuesday, June 17, 2014 - 10:30am

by Christian Hudspeth

Yesterday, I mentioned how bond investors are being ripped off.

More importantly, I made the case that if you're invested in long-term bond funds right now, you could be setting yourself up for double-digit losses in less than a year's time.

So if long-term bond funds are risky, and we are given a pittance in exchange for our hard-earned dollars in short-term bonds, where are income investors to turn?

An investment with a dividend yield over 3% would be nice for starters -- beating the 2.6% yield that the 10-year Treasury currently offers, without locking up your money for the next 10 years.

But why stop with a 3% yield? How about something that would give us an income raise every year, even through market corrections and recessions?

How about an investment with a fair amount of safety, but something that's beaten the S&P 500 index over the long haul -- even doubling the market's performance?

Believe it or not, investments like this do exist.

In fact, the good folks at Standard & Poor's put this select group of stocks into a class of their own.

They're called the "Dividend Aristocrats."

You may have heard of Dividend Aristocrats before. Here's what I wrote about them in a recent StreetAuthority article:

Bar none, they're the most elite dividend stocks on Earth.

Valued at over $3 billion each, these mega-sized blue-chip companies have managed to pay out dividends for decades. Some have paid a dividend for the past century or even longer.

But to earn their coveted status [as a Dividend Aristocrat], they've had to increase their dividend every year for the past 25 years or longer. And to keep the status, they have to keep paying a larger dividend every year from now on -- no easy feat.

That's why only 54 out of the 500 stocks in the S&P 500 have made the cut.

You know these stocks. These are established blue-chip companies like 3M, Exxon Mobil, Wal-Mart, Target, McDonald's and others. Some have thrived as successful businesses for more than a century.

But what you may not know -- and what most don't fully appreciate -- is that while these blue-chip stocks may not be sexy, they absolutely crush the market.

You can see what we mean in the chart below, which shows their performance since Standard & Poor's first created the Dividend Aristocrats Index in 1989:

Regardless of how good this chart looks, many fixed-income investors will still choose to avoid these investments merely because they are stocks.

But it would be a mistake to ignore these dividend machines.

These companies have a track record of such resilient profits that they all have paid uninterrupted dividends for two decades -- and often much longer.

Aristocrats like Johnson & Johnson, Procter & Gamble, Colgate-Palmolive and Coca-Cola have managed to pay dividends since the late 1800s. Colgate-Palmolive has been thriving for more than 200 years -- through both World Wars, the Great Depression, multiple recessions and countless market crashes.

While many of the 54 stocks that make up the Dividend Aristocrat index may carry dividend yields that are relatively low, it's not hard to find Dividend Aristocrats paying yields over 3%.

But the special sauce that comes from these investments is the annual dividend raises.

For example, say you bought shares of Procter & Gamble (NYSE: PG) back in 1993 for $8 per share (split-adjusted). In the first year of holding the stock, you would have received $0.30 per share in dividends, giving you a dividend yield of 3.8% ($0.30/$8). Not a bad way to start.

If you held onto those shares to today, you would have received a dividend raise every single year since you bought the stock. Today, those $8 shares would be paying you $2.57 per share in dividends each year -- or 776% more in dividend income from when you bought the stock. And today, your yield-on-cost would be a staggering 32%.

To give you an idea of how significant that is, look at the chart below to see how your annual dividend income would have grown on a one-time, $10,000 investment in Procter & Gamble made in 1993:

In the first year, you would have collected $366 in dividends from your investment. And each year thereafter, you would earn more and more ($671 in the fifth year, $1,081 in the 10th year and so on).

Imagine collecting an annual income stream of $3,000 every year from a small $10,000 investment that you made 20 years ago. Now you know why these stocks are so coveted.

Of course, past performance is no guarantee of future success. But with track records like these, it's hard to argue against these companies being able to continue this kind of stellar performance.

It's a similar story for many of the Dividend Aristocrats. But to find the absolute-most reliable Dividend Aristocrats in the bunch, I have identified 6 that not only yield more than 10-year Treasuries, but have also raised their dividend for more than 50 years in a row.

It's simple. Dominant companies with consistently growing profits can afford to keep increasing their dividends every year. Naturally, investors love getting an income raise annually, so they're attracted to these stocks.

Consistent dividend raises go hand-in-hand with share price gains -- which is exactly why we like Dividend Aristocrats. Many of these stocks not only pay yields that beat the pants off of traditionally "safe" investments like bonds or treasuries, but they've also rewarded investors with triple-digit gains over time.

Note: If these Dividend Aristocrat stocks have you excited, wait until you see what Amy Calistri has found. In her latest research for her premium income advisory, The Daily Paycheck, she talks about a group of stocks she's nicknamed "Lifetime Income Generators."

"Lifetime Income Generators" are stocks that have reliably grown their dividend each year for decades -- sometimes giving investors 10% dividend raises year after year -- while delivering outstanding returns. In fact, since she recommended one of these stocks in 2010, its dividend yield has grown from 6.7% to a whopping 14.5%, plus it's delivered an incredible total return of 327%. To get the name of this stock and other stocks like it, you'll want to see Amy's memo here.

Christian Hudspeth does not personally hold positions in any securities mentioned in this article.
StreetAuthority LLC owns shares of DBD in one or more of its “real money” portfolios.