In the go-go 1960s the term Nifty 50 was used to describe the hot growth stocks of the era, companies to be bought and never sold. The Nifty 50 did not work out so well with high energy prices, inflation and a recession hitting the economy in the later 70s and into the 1980s. However if a investor had purchased shares of companies with steady and increasing dividend payments, that investor would be very wealthy today with a large stream of dividends coming in every year. Here are five stocks that should provide an investor with a growing income stream and share price appreciation for as long as he or she wants to hold the shares.
Altria Group (NYSE:MO) is a stock choice for a current high yield. At the 2011 dividend rate, MO is paying investors a greater than 5.5 percent yield. Altria does payout the major portion of earnings as dividends to investors, with a 2011 payout ratio of 85 percent of adjusted net income. Altria is the holding company for Phillip Morris USA. The international portion of the company, Phillip Morris International (NYSE:PM) was spun off in March 2008. Since the spin-off, Altria has increased the quarterly at least once a year from 29 cents per share to the current 41 cent payout. Altria's revenue and profits are projected to grow at a high single digits rate for the next five years and the dividend should see similar increases.
Kraft Foods (KFT) has a current dividend yield of 3.2 percent. The current 29 cents quarterly / $1.16 annual dividend represents a 50 percent payout ratio on Kraft's adjusted net income per share. From 2001 through the third quarter of 2008, Kraft had a history of steady, meaningful dividend increases. The current 29 cents quarterly payout has been in effect since the third quarter of 2009. Earnings per share have continued to increase over the last three years. Kraft reported stronger operating results over the second half of 2011 and there is a possibility the company will resume a policy of dividend increases in 2012. Conservative investors may want to wait for the announcement of a higher dividend before making a long-term investment in Kraft Foods.
Exxon Mobil (NYSE:XOM) has paid an increased dividend to investors for at least 25 consecutive years. The current 47 cent quarterly dividend represents a yield of 2.3 percent at an $80 XOM share price. The $1.88 annual dividend puts the payout ratio at just 22 percent of net income. Since 2007, the quarterly payout has increased from 32 cents to the current 47 cents quarterly. Exxon Mobil usually increases the dividend in the second quarter of each year. The company's dividend has grown at an annual rate of almost 6 percent over the last 27 years. Investors can expect the XOM dividends to continue to increase as long as energy prices stay near where they are currently or higher.
McDonald's (NYSE:MCD) is another stock with at least a 25-year history of annual dividend rate increases with a string of dividend growth going back to 1976. McDonald's sports a current dividend yield of about 2.8 percent with a 70 cents per quarterly per share payout rate. The $2.53 paid in dividends for 2011 represent a 50 percent payout ratio of the net earnings for the year. McDonald's typically increases the dividend rate for the final dividend of the year, paid in December. Since returning to a quarterly dividend payment in 2008, the increase has been at least 10 percent every year and the quarterly rate has grown from 37.5 cents to the current 70 cents over the four-year period. Revenue and earnings projections for the next five years should allow a continued path of strong annual dividend growth for the company.
Pharmaceutical producer Merck (NYSE:MRK) is a high-yield stock with a history of steady dividend payments. The 38 cent quarterly dividend gives Merck a current 4.8 percent yield. The $1.68 annual dividend rate equates to a 45 percent payout ratio of the expected 2011 net income. The Merck dividend has been at the 38 cent quarterly rate since third quarter of 2004, when the payout was increased by a penny. Although the company has not increased the dividend in recent years, Merck has never reduced the quarterly rate going back to at least 1970.
As you can see from this list of buy-and-hold dividend stocks, investors have a choice of a current high yield on a dividend, which is steady but may not increase, or select stocks with a current lower yield and a dividend that should increase significantly in future years. A balanced choice would provide both an attractive current portfolio yield and a growing dividend stream.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.