If you are currently retired or getting close to retirement age, building a portfolio that generates stable income is probably your primary focus right now. In our opinion, one of the best ways to generate stable income is through dividend growth investing. Thankfully, this strategy is not rocket science and it is fairly simple for anyone to implement. Ideally, you want to build a portfolio of dividend paying stocks that have a track record of increasing their dividends every year. This way, not only are you generating stable income, but you are also able to maintain the purchasing power of your dollar (as long as your dividends are at least rising at the rate of inflation).
What Is A Dividend Aristocrat?
Each year, Standard & Poor's publishes its list of Dividend Aristocrats. According to S&P:
Since 1926, dividends have contributed nearly a third of total equity return while capital gains have contributed two-thirds. Sustainable dividend income and capital appreciation potential are both important in determining total return expectations.
The S&P 500 Dividend Aristocrats is designed to measure the performance of large cap, blue chip companies within the S&P 500 that have followed a managed-dividends policy of consistently increasing dividends every year for at least 25 years.
Companies included in the S&P 500 Dividend Aristocrats come from a broad spectrum of industries. Unlike indices that focus only on high dividend yields, which are typically from the Financials and Utilities sectors, the "Dividend Aristocrats" are well diversified across all sectors.
Aristocrats Yielding Over 3.0%
We recently ran the entire list of Dividend Aristocrats through our rating system and came up with our "All-Aristocrat" team. This team is made up of the 20 Dividend Aristocrats with the highest Parsimony Ratings. Here are links to that 4-part series: First Team, Second Team, Third Team and Honorable Mention.
Many of the stocks on our "All-Aristocrat" team have dividend yields under 3.0%, which is a key target threshold for many dividend investors. While we believe that there is more to dividend investing than yield itself, we understand that many retirees have a minimum 3.0% yield hurdle for their retirement portfolios.
That said, we are starting a new 3-part series today that highlights our top 12 Dividend Aristocrats that have dividend yields over the magic number of 3.0%. We broke this list down into gold, silver and bronze rankings (note that the gold medal winners are the stocks with the highest Parsimony rating):
- Part 1: Bronze (stocks #9-12)
- Part 2: Silver (stocks #5-8)
- Part 3: Gold (stocks #1-4)
Silver Medal Winners
The vast majority of the roughly 50 S&P Dividend Aristocrats rank very highly in our system, but we only picked the top 12 3%-yielders for the Core Retirement Portfolio list. This article highlights the 5 stocks that received Silver medals (stocks ranked #5-8). The tables below summarize some of the key data points that we analyze when ranking our dividend stocks.
#8 Cincinnati Financial Corp. (CINF)
Cincinnati Financial has the 3rd highest dividend yield (3.9%) of our top 12 and it has increased its dividend to shareholders for 52 consecutive years, including a compound annual growth rate of 7.5% over the past 10 years. The company's revenue and earnings growth has slowed in recent years, but we expect the company's very stable dividend to continue.
#7 Sysco Corporation (SYY)
Sysco recently approved a 3.7% increase to its quarterly cash dividend for 2013, which marked the 44th increase that the company has implemented since going public in 1971. The pace of dividend increases has slowed in recent years, but Sysco's increases are still keeping pace with inflation (which is important for long-term dividend investors). We expect this very stable dividend to continue in the years to come.
#6 The Clorox Company (CLX)
The Clorox Company has delivered shareholders a total return of 50.8% over the past 5 years driven by a compound annual dividend growth rate of 11.8%. Clorox has increased its dividend to shareholders every year since 1977. In addition, the stock has had a very modest maximum drawdown over the past 5 years of 28.4%, which has allowed investors to sleep very well at night.
#5 Genuine Parts Company (GPC)
Genuine Parts has paid a dividend every year since going public in 1948. Over the past 5 years the company has delivered shareholders a total return of 66% and it has grown its dividend at a compound annual rate of 6.2%. In addition, GPC has a high Financial Stability Rating (86) and a strong balance sheet. The company has almost $400 million of cash on its books and a very low debt-to-EBITDA ratio (0.46x).
If you are looking to generate stable income, dividend growth investing is a great way to accomplish this goal and any one of these dividend Aristocrats make a nice addition to your retirement portfolio.
Please make sure to "follow" us as we continue this series and unveil the dividend stocks that won the Gold medals.