When it comes to dividends, many of us understand how powerful they can be -- sometimes making up a huge chunk of the overall return of the market or a particular stock. We also tend to associate dividends with the usual suspects -- big, familiar blue-chip stocks. That's fine, but if you dig a little deeper, you may find yourself surprised by scores of less well known companies with impressive dividend-paying track records.
Never heard of them...
Some are surprising simply because they're not familiar to many of us. Waste Management (NYS: WM) should be familiar to us, but it's not exactly a household name. It's a $16 billion-market-cap garbage and recycling behemoth, paying a 4% dividend that it has increased for eight years in a row. Part of the company's promise lies in its expansion abroad and in its recycling initiatives.
We know all the major U.S. telecom providers, but most of us don't know Telefonica (NYS: TEF) , meeting the voice and data needs of customers in Spain and Latin America. It recently sported a trailing yield approaching 10% and a nine-year earnings streak, and though it has been whacked for its ties to troubled Europe, there's much growth to be had in Latin America, and the company is investing heavily there.
Then there's Teva Pharmaceutical (NAS: TEVA) , the world's largest generic drugmaker, with more than 1,000 drugs in its pipeline. Its revenue and earnings have been growing briskly, and it sports a 12-year dividend streak.
The wrong industry
Other significant dividend payers are surprising because they just don't come to mind as promising portfolio candidates in this troubled economy. Consider Fastenal (NAS: FAST) , for example, which is in the beleaguered building materials industry, making all kinds of construction-related fasteners, and more. According to data offered by the folks at dripinvesting.org, the company has been hiking its dividend for 12 years in a row and recently offered a 1.6% yield. The company has been posting double-digit revenue increases, too. Similarly, Universal Forest Products (NAS: UFPI) has been raising its dividend for 16 years, and is yielding around 1.5%. It's not in as good shape as Fastenal, though, with weak sales worrying investors.
Another contender is Caterpillar (NYS: CAT) , with 18 years of consecutive dividend increases and a yield recently around 2.1%. It specializes in construction, farm, and mining equipment, and though global construction hasn't exactly been booming lately, an eventual rebound is inevitable. Meanwhile, those who have put off major equipment upgrades will eventually have to upgrade.
Food distribution giant Sysco (NYS: SYY) may seem like an all-economy defensive stock. But our economy is so shaky right now that about half of Americans didn't dine out at all last year. That's certainly putting pressure on Sysco, but it hasn't kept the company from racking up 41 consecutive years of dividend increases, or from offering a yield of nearly 4%.
The big picture
As you evaluate dividend candidates for your portfolio, be sure to look at more than their string of dividend increases. Look, for example, at their dividend growth rate. A company raising its dividend for 40 years in a row is impressive, but if the actual annualized growth rate over the past few years has been 2%, that's not so wonderful. Check payout ratios, too, to make sure a company isn't paying out more than it earns.
With the companies above, for example, Universal Forest Products sports a five-year dividend growth rate of 29.5%, but its payout ratio is 125%. Fastenal's growth rate is slower, at 20.6%, but its payout ratio is just 63%. Like Fastenal, Teva Pharmaceutical may not seem to have the most attractive dividend, with a yield of around 2%. But its growth rate is near 25%, and the stock has a payout ratio of just 22%, so that yield may grow fast. The big picture matters.
At the time thisarticle was published Longtime Fool contributorSelena Maranjianowns shares of Teva Pharmaceutical Industries, but she holds no other position in any company mentioned.Click hereto see her holdings and a short bio. The Motley Fool owns shares of Waste Management, Telefonica, Universal Forest Products, and Teva Pharmaceutical Industries.Motley Fool newsletter serviceshave recommended buying shares of Teva Pharmaceutical Industries, Waste Management, and Sysco, as well as writing a covered strangle position in Waste Management. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.
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