In 2009 and 2010, the stock market had one of its best rallies in history. Many forecast 2011 would be an extension of that rising stock market. That didn't work out even though the year prior to a presidential election is generally a good one for the stock market. The market started strong, but slipped in May and collapsed by August. Since then, stocks have been working their way higher while largely stuck in a sideways trading range. Today many are calling for higher stock prices in 2012 (a common forecast at every year-end).
But economic problems from the last half of 2011 have not gone away. The European debt mess has the potential to drag eurozone countries into a recession. That would negatively impact trading partners such as the U.S. The U.S. economy, while recovering, is stumbling with a depression in housing, making it difficult for the high unemployment problem to be solved. Rising stocks have lost their way.
Capital appreciation in 2012 is uncertain. But that is only one of the two ingredients for capital growth. Dividends have higher reliability and dividend aristocrats have the best records. They have been raising annual dividends for a minimum of the prior 25 years. Those dividends are expected to increase in 2012 and beyond. The S&P 500 group increased two weeks ago, partially because of a change in the way S&P accounts for special dividends. Now there are more dividend champs to choose from when investing.
Below are 12 Dividend Aristocrats which will be raising dividends next year and for many more years.
(1) AT&T (T) is descended from the original "telephone company" founded in 1883. AT&T is a leader in mobile broadband and emerging 4G capabilities, offering the most wireless phones that work in the most countries along with advanced TV services. Its bid for T-Moblie was just called off which would have made it the largest wireless carrier. The stock provides a yield of 5.9% and the annual dividend has been increased for the last 28 years.
(2) Leggett & Platt (LEG) sells components for bedding, furniture and automotive seat support. It has been recovering from the recession which hurt EPS but earnings are recovering. Weak businesses were sold, paying for an aggressive stock buyback program and modest dividend increases. The stock yields 4.9% and the annual dividend has increased for the last 40 years.
(3) HCP, Inc. (HCP) is a REIT that invests primarily in healthcare real estate, including senior housing and related healthcare facilities. Its leverage is conservative with a high credit rating, levered at 40% debt and 60% equity. The annual dividend has been increased for the last 26 years and its yield is 4.8%.
(4) Kimberly-Clark (KMB) is a paper company with popular brands such as Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend. These brands typically hold No. 1 or No. 2 share positions in more than 80 countries. The stock has been increasing the annual dividends for 39 consecutive years with increases from $1.80 in 2005 to $2.80 in 2011. The stock yields 3.8%.
(5) Sysco (SYY) is the global leader in marketing and distributing food products to restaurants, healthcare and educational facilities and hospitality businesses. It has been increasing the annual dividend for the last 42 years and offers a 3.7% yield.
(6) Clorox (CLX) sells a variety of household products such as Clorox bleach, Armor All, STP, Kingsford, Hidden Valley, Brita and Glad bags around the world. It has been increasing the annual dividend for 34 years and yields 3.7%.
(7) Johnson & Johnson (JNJ) ranks as the world's largest and most diverse healthcare company with more than 250 operating companies worldwide. Its global presence is expanding in the BRIC countries: Brazil, Russia, India and China. JNJ has maintained its AAA credit rating. Next year its streak of higher annual dividends will reach 50 and its yield is 3.5%.
(8) Abbott (ABT) is an old line pharmaceutical company which has diversified over the years. It has paid annual dividends since 1926 and has been increasing the dividend for the last 39 years. ABT announced that it will split into two companies next year to (hopefully) give shareholders more value. The company has been growing but has a P/E of only 12X. Its yield is 3.5%.
(9) Illinois Tool Works (ITW) will celebrate its 100 year anniversary next year, is diversified industrial manufacturer. Key businesses include: Transportation, Industrial Packaging, Power Systems and Electronics, Food Equipment, Construction Products, Polymers and Fluids and Decorative Surfaces. A majority of revenue is generated in 60 countries overseas. It has been increasing the annual dividend for 48 years and yields 3.1%.
(10) Brown-Forman (BF.B) sells alcoholic beverages, such as Jack Daniels and Southern Comfort, along with a wide variety of other brands around the world. Growth will come from expanding markets for its brands globally. The stock has a 1.8% yield and the dividend has been raised over the last 28 years.
The last two are stocks I've owned for more than a decade. They demonstrate how increasing dividends, reinvested dividends and higher stock prices produce capital appreciation, the definition of successful investing.
(11) Coca-Cola (KO) produces carbonated and still waters around the world. Growth will come from more rapid growth in still waters (Dasani, vitaminwater, smartwater, etc.) and an expanding presence around the world, especially in emerging countries. In February, the dividend increase (probably to $2.00) will mark the 50th consecutive year of dividend increases. The stock yields 2.7%. In the last 10 years, the dividend increased from 72 cents to $1.88 and the stock rose from $49 to $69.
(12) VF Corp (VFC) is the largest apparel manufacturer in the world. In the last decade, it switched emphasis from traditional brands (i.e Wrangler and Lee jeans) to casual branded lines such as Vans, The North Face and Timberland. Expansion has come from company stores and global marketing, especially in emerging countries. Last month it acquired full ownership of VF Arvind Brands to market VF brands in India. The dividend has been increased for the last 39 years and the stock yields 2.2%. In the last 10 years, the dividend increased from 96 cents to $2.88 and the stock rose from $39 to $126.
A variety of quality stocks are presented because different investors have different ideas about investing. However, these stocks share one key characteristic, an impressive record of raising annual dividends (even though recessions). The Federal Reserve has all but assured that the low interest environment will last through 2012 and probably well into 2013, at a minimum. Banks are advertising rates on CDs above 1% and some investors accept those rates. These yields generally exceed 3% and are largely free of the business risk (a possible business failure or even reduction in the dividend). The past four months have been frustrating for investors. But dividends continued and these companies raised them in 2011. When markets stumble, added shares from higher dividends feel good because that produces capital growth.
Disclosure: I am long KO, VFC.