By Paul Tracy
More investors are finding out about them every day. Or I shouldn't say they are finding out about them -- most investors have known about these "lifetime income generators" in one form or another for decades.
Instead, what's actually happening is more investors are putting their trust in these stocks, which I like to call "lifetime income generators." And why not?
In 2011, the S&P 500 Index was up and down... finishing the year flat. But I've found dozens of these lifetime income generators (I'll show you a few in a moment) that soundly beat the market for the year. And they accomplished that largely without the same ups and downs of the overall market.
It sounds too good to be true, but the secret to success behind these rare stocks is simple. Lifetime income generators are companies with stable businesses and strong cash flows that can be depended on to pay -- and increase -- their dividends year after year.
These stocks are pretty rare. Standard & Poor's has a Dividend Aristocrats Index that's made up of stocks that have increased dividends for 25 years or more. Only 42 stocks made it into the index at last count.
The good news? There are a number of companies that have consistently raised their dividends for years, but simply haven't made it the full 25 years yet. By my estimates, there are about 100 stocks I'd call lifetime income generators.
And if you buy their shares and let these stocks pay you over the long term, you can easily earn some enormous dividend yields that would otherwise be impossible to capture.
Take a look at Philip Morris International (NYSE: PM) (I've written about this stock before). It's one of my favorite lifetime income generators. It was spun-off from parent Altria (NYSE: MO) in 2008.
In 2009, Philip Morris was paying about $2.25 in dividends per year. Trading at a price of $44 per share, any investor could have picked up the stock and locked in a solid 5.1% yield.
Philip Morris has increased its dividends at a 12% annual pace. Today it is paying $3.08 per share every year. This gives anyone who bought just two years ago a 7.0% dividend yield on their original investment.
But Philip Morris is a lifetime income generator. I expect the company to raise its dividend for years and decades to come. If it sustains the 12% annual pace of growth, then in 2015, the company would pay $4.44 per share in annual dividends. That's a 10% yield on your original 2009 investment.
Meanwhile, from the start of 2009 until today, Philip Morris investors have seen a total return of 104%.
This is just a taste of what you can get when you focus on lifetime income generators. Along with Philip Morris, there are others such as Kimberly-Clark (NYSE: KMB).
Kimberly-Clark makes basic paper products. The company makes Kleenex, Cottonelle, and Pampers. About 10 years ago, you could have bought shares at $56. Back then, they paid a quarterly dividend of $0.30 per share for a dividend yield of 2.1%. Today, dividends have risen 133% to $0.70 per share each quarter. That investment would be earning a 5.0% yield today thanks to the higher dividends. And in 2011 the stock returned 22%, topping the S&P.
But not all lifetime income generators come from the "boring" industries you might expect. Intel (Nasdaq: INTC) is one of my favorites. Intel holds an 80% market share of its PC semiconductor market. It's simply the most dominant company in its field and is able to generate tremendous amounts of cash from its business. In 2002, the company paid dividends of $0.02 per quarter. Today, the dividend has grown to more than 10 times that amount -- $0.21 a share each quarter -- and the company has never lowered the payment.
Don't think that lifetime income generators will make you rich overnight. This type of stock is meant to be bought and hold for the long-term. But as you can tell from the performance of these stocks in the past year, this doesn't mean you can't also see a strong return in a shorter amount of time.
Disclosure: P. Tracy owns shares of PM, INTC. StreetAuthority, LLC does not hold positions in any securities mentioned in this article.