Before the late 1950s, most stock investors focused not on capital gains but on dividends. According to Fidelity Viewpoints, "For many years, dividends were the primary reason to invest in the stock market."
Given the terrible payouts on savings accounts and most bonds right now -- 215 stocks in the S&P 500 have a higher yield than a 10-year Treasury bond -- 2011 marked the Great Dividend Resurgence. Of the top 10 most-read Fool.com articles last year, eight were dividend-focused. Our free report detailing a dozen or so high-yielding stocks, launched late in 2010, has been downloaded nearly half a million times.
And in a happy coincidence, it's good to be a dividend investor again.
Cash in your pocket
Out of the approximately 7,000 companies that report dividend information to S&P Indices, only 101 cut their dividend last year. That figure is down from 145 in 2010, which was down from 804 in 2009. During the year of reckoning (2008), 606 companies reduced their dividends.
Not only are fewer companies cutting payouts, more are increasing them. In February alone, "two dozen" companies have raised their dividends, according to Dow Jones Newswires, bringing the 2012 total number for dividend hikers to almost 60. And we're six weeks in.
3M (NYS: MMM) is one example. On Tuesday, the conglomerate said it would raise its quarterly dividend 7%, marking the 54th straight year it has increased the payout. Big picture, S&P Senior Index Analyst Howard Silverblatt expects dividends to rise a remarkable 11% this year, as my colleague Morgan Housel noted.
That double-digit gain is feasible given that companies are flush with cash. As of late January, U.S. corporations had total cash reserves greater than $2 trillion, "close to a 50-year high in relative terms," wrote Time. Meanwhile, the S&P dividend payout ratio -- dividends paid as a percent of earnings -- is close to an all-time low.
Dividends = discipline
As I've written before, I love companies that have shown a commitment to raising their payouts (I've long owned 3M in my own portfolio). As an owner, you can rely on inflation-beating dividend payments and feel secure in the academic studies showing that dividend-paying companies are better-disciplined stewards of shareholder capital.
That 3M has increased its dividend for more than half a century is impressive. Even more so, the company has paid dividends without a single interruption for more than 95 years, a remarkable streak that is more common than I first thought.
Consider that the nine stocks listed below have all been paying dividends since Franklin Roosevelt was in the White House -- at least -- an awesome consistency that shows a culture of discipline, determination, and stewardship at these firms. (To trot out my favorite dividend one-liner, professor Aswath Damodaran has said "dividends are like getting married; buybacks are like hooking up.")
To evaluate how attractive these stocks are now,I've also included their five-year dividend growth rate -- because dividend growth is at least as important as dividend consistency.
Paying Uninterrupted Dividends Since
Current Yield Higher Than 10-Year Treasury?
5-Year Dividend Growth Rate
Abbott Labs (NYS: ABT)
Procter & Gamble (NYS: PG)
Johnson Controls (NYS: JCI)
United Technologies (NYS: UTX)
Church & Dwight
Dividend growth rate data from MSN Money.
These dividends may not survive another six decades. But when searching for the kinds of income-producing blue chips that will allow you to rest easily, this list is a great place to start. Or to put it more broadly, to find the kinds of stocks that will consistently pay you a good portion of their earnings (or better yet, free cash flow), start with those that have shown a long-standing pattern of that behavior.
In my next column, I'm going to reveal which of these nine stocks I like best for new money. Until then, I encourage you to check out an updated version of the free report I mentioned earlier, which gives the buy thesis for 11 high-yielding dividend stocks. Click here for your copy.
At the time thisarticle was published Fool.com managing editorBrian Richardsowns shares of 3M and Church & Dwight. The Motley Fool owns shares of Coca-Cola and Abbott Laboratories.Motley Fool newsletter serviceshave recommended buying shares of Abbott Laboratories, Coca-Cola, 3M, and Procter & Gamble, and they've recommended creating a diagonal call position in 3M. The Motley Fool has adisclosure policy, which is why we tell you all this.
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