Investors purchase dividend growth stocks with the intent of generating a higher stream of distributions over time that would meet or exceed inflation. Typical dividend growth stocks in the sweet spot have average to slightly above average yields and high dividend growth rates supported by rising earnings.
This works great for investors who have time before retiring. Some investors, who are ready to retire however, often wonder whether it would be possible to not only generate dividend growth which is equal to or higher than inflation, coupled with high current dividend yields. There is a solution for that, but it comes at a price. The price to pay is that most high dividend stocks which pay consistent dividends are typically concentrated in a few sectors such as Master Limited Partnerships, Real Estate Investment Trusts, Utilities, Tobacco, Telecom and a few others.
Some of the best high yield dividend stocks which have not only paid rising dividend payments to their shareholders but also offer generous yields include:
Kinder Morgan Energy Partners, L.P. (KMP) owns and manages energy transportation and storage assets. The company has raised distributions for 15 years in a row, yields 6.10% and has a ten year annual dividend growth rate of 10.90%. (analysis)
Enterprise Products Partners L.P. (EPD) provides a range of services to producers and consumers of natural gas, natural gas liquids (NGLs), crude oil, refined products, and petrochemicals in the continental United States, Canada, and Gulf of Mexico. The company has raised distributions for 14 years in a row, yields 5.80% and has a ten year annual dividend growth rate of 8.30%. (analysis)
Philip Morris International Inc., (PM) through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. The company has raised distributions since 2008 and yields 3.70%.
Altria Group, Inc. (MO), through its subsidiaries, engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. The company has raised distributions for 43 years in a row, yields 5.60% and has a ten year annual dividend growth rate of 11.70%.
Universal Health Realty Income Trust (UHT) is a real estate investment trust (REIT) which invests in health care and human service related facilities. The company has raised distributions for 22 years in a row, yields 5.70% and has a ten year annual dividend growth rate of 2.80% .
National Retail Properties, Inc. (NNN) is a publicly owned equity real estate investment trust. that acquires, owns, manages, and develops retail properties in the United States. aThe company has raised distributions for 21 years in a row, yields 5.70% and has a ten year annual dividend growth rate of 1.90%.
Piedmont Natural Gas Company, Inc. (PNY), an energy services company, distributes natural gas to residential, commercial, industrial, and power generation customers in portions of North Carolina, South Carolina, and Tennessee. The company has raised distributions for 33 years in a row, yields 3.70% and has a ten year annual dividend growth rate of 4.40%.
AT&T Inc. (T), together with its subsidiaries, provides telecommunication services to consumers, businesses, and other service providers worldwide. The company has raised distributions for 27 years in a row, yields 5.50% and has a ten year annual dividend growth rate of 5.50%.
Investors who are trying to generate sustainable income in retirement should not focus on the higher yielding sectors however. They should try to be diversified and hold at least 30 stocks representative of as many sectors as market conditions allow. Quality should never be sacrificed for diversification purposes of course, which is why building a diversified income portfolio takes time.
Disclosure: Long KMR, PM, MO, UHT, NNN, EPD