Making money in the stock market consists of growing stock prices and higher annual income. At least that was the case in the last century. Traditionally about 2/3 of appreciation came from growth of stock prices and the balance was dividend income. However, since 2000, stock market prices have been languishing in a sideways pattern with 2 major sell-offs. The sideways trend continued this year. Dow Jones Industrials are up 6% this year and only 13% since the start of 2000.
However dividends have been fairly reliable. A few of the finest companies continued raising dividends even during the toughest times in recent years. Just 51 S&P 500 companies (along with a few smaller companies) qualify as Dividend Aristocrats. They raised annual dividends for a minimum of the last 25 years. Those dividends rewarded stockholders, including in the last 12 years, when capital appreciation has been limited and uneven.
Below are 12 of the finest high yielding Dividend Aristocrats:
Leggett & Platt (LEG)
Johnson & Johnson (JNJ)
Emerson Electric (EMR)
Procter & Gamble (PG)
Abbott Labs (ABT)
The 4 with the highest yields have had fairly modest annual dividend rises (2¢ or 4¢) in recent years, although the Leggett & Platt dividend has a different story. Its dividend jumped to $1 in Q4 2007, just prior to the recession, which hit the company hard. The 4 annual increases since then have been 4¢ and that trend should continue until EPS rises significantly. Analysts are forecasting EPS will grow from $1.49 (their estimate) in 2012 to $1.62 next year. Further growth could bring larger dividend increases.
The remaining 8 have had more significant annual raises. 2012 dividends were at least 40% above the 2007 dividends (McDonald's and Walgreen more than doubled). Johnson & Johnson, Emerson Electric and Procter & Gamble have been increasing dividends for at least half a century. When JFK was president, they were increasing dividends, which continued through the difficult recession 3 years ago.
2 of the most interesting companies are McDonald's and Abbott Labs. Retail sales at McDonald's have been sluggish this year and a new president was just appointed for the U.S. business. With the 13% stock price decline in 2012, the dividend currently provides one of the highest yields in MCD history. Also, MCD has increased dividends annually since its IPO in 1976.
Abbott Labs, founded in 1888, is splitting into 2 companies in January. It has guided that combined dividends will be $2.16 next year, 6% above the $2.04 dividend paid in 2012. But the 2 new companies run the risk of losing being classified as a Dividend Aristocrat. Next month, S&P will announce the updated list for Dividend Aristocrats and perhaps will discuss the status for ABT. Investors approved the change and raised the stock price 25% in the last 1½ years.
The current outlook for the stock market is more uncertain than usual; the fiscal cliff is finally getting the attention it deserves. It not only threatens next year's economy, but companies are already holding back expansion plans because of added uncertainty. If the politicians don't reduce the federal deficit, the sluggish economy of 2012 will slide into a recession next year. The European situation is serious between the debt mess and a new recession. China has been leading global growth. But 2012 growth will be the slowest in more than a decade as it goes through a once in a decade change of leadership.
These companies with high yields are expected to extend annual dividend increases next year, even if the U.S. goes over the fiscal cliff. High yields, increased dividends and expectations for more annual increases are crucial for high rates of return in uncertain times.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.