A couple of years, ago when the U.S. was coming out of a brutal recession, the Federal Reserve reduced interest rates substantially. Short rates were slashed to almost zero and long-term rates fell to record low levels. In those days, everybody was guessing when the rates would be increased back to traditional levels, which related to a rebounding economy. The recovery has been less than robust with high unemployment and a depressed housing market. As a result, interest rates remain at or near record lows and these conditions have all but been promised for the rest of 2012 and probably well into next year (if not longer). There are even rumors of a QE3 to lower long rates.
In the low interest environment, dividends for the vast majority of companies continued to be paid and some have been raised. Many investors appreciate dividend income when capital gains have been uneven and extremely volatile in recent years, including for many of the bluest chip companies.
A story about a friend illustrates the importance of growing dividends over time. She bought a few shares of AT&T when it was the most famous monopoly in America. Not knowing much about stocks, she allowed the dividends to reinvest over the years. When AT&T was broken up 25 years ago, her investment narrowed to Verizon (V) and AT&T (T). That investment has appreciated so much that reinvesting dividends was stopped several years ago. But the annual income kept rising with dividend increases and approximates her original investment. This performance took years, but can be expected for companies with a history of not only paying dividends, but raising them on a regular basis. The best are Dividend Aristocrats which have records of raising annual dividends for a minimum of the last 25 years.
Below are 12 of the finest Dividend Aristocrats with high yields, above 3%. Attractive yields along with expectations of increasing dividends are important with a continuation of interest rates at their lowest rates in history.
AT&T descended from the original "Telephone Company" founded in 1883. AT&T is a leader in mobile broadband and 4G capabilities offering wireless phones used in most countries, along with advanced TV services. The stock provides a yield of 5.8% and the annual dividend has been increased for the last 28 years.
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 coming back. In the last 3 years weak businesses were sold, helping pay for an aggressive stock buyback program and modest dividend increases. The stock yields 4.8% and the dividend has increased for the last 40 years
HCP, Inc. (HCP) is an REIT that invests primarily in healthcare real estate, largely senior housing and related healthcare facilities. Its leverage is conservative (40% debt and 60% equity) with a high credit rating. The dividend has been increased for the last 26 years and its yield is 4.6%.
Kimberly-Clark (KMB) is a leading paper company with popular brands such as: Kleenex, Scott, Huggies, Pull-Ups, Kotex and Depend. Its brands typically hold #1 or #2 positions in more than 80 countries. The dividend has been increased for 39 years and was raised from $1.80 in 2005 to $2.80 in 2011. The stock yields 3.8%
Sysco (SYY) is the global leader in marketing and distributing food products for restaurants, healthcare and educational facilities and hospitality businesses. It has been increasing the dividend for the last 42 years and offers a 3.5% yield.
RPM Intl (RPM) products include, Roofing Systems, construction sealants, chemicals, flooring Systems. corrosion control coatings, fiberglass reinforced plastic gratings along with waterproofing & concrete repair sold around the world. Its guidance was maintained for double digit gains in fiscal 2012 EPS. The dividend has been increased for 37 years and provides a yield of 3.5%.
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. With the next dividend increase, its streak will reach 50 years and the yield is 3.5%.
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 dividend for 34 years and yields 3.4%.
Abbott (ABT) is an old line pharmaceutical company which has diversified over the years. ABT announced that it will split into 2 companies in 2012 to (hopefully) give shareholders more value. The company keeps growing but has a P/E of only 12X. It has paid annual dividends since 1926 which have been increased for the last 39 years. The yield is 3.5%.
Emerson Electric (EMR) is a diversified global technology company that designs and supplies product technology and delivers engineering services for industrial, commercial and consumer markets around the world. There are 5 business segments: Process Management, The Industrial Automation, The Network Power, Climate Technologies, and Tools and Storage. The last dividend was increased 16%, extending its streak to 55 years and provides a yield of 3.2%.
Bemis (BMS) is a worldwide supplier of flexible packaging and pressure sensitive materials used by food, consumer products and healthcare companies with sales of $5 billion. The company's flexible packaging business has a strong technical base in polymer chemistry, film extrusion, coating and laminating, printing, and converting. It has been increasing the dividend for 28 years and yields 3.2%.
PepsiCo (PEP), a world leader in convenient snacks, foods, and beverages, is split into 5 divisions: Pepsico, Tropicana, Frito Lay, Quaker Oats and Gatorade. Popular brands include Pepsi-Cola, Diet Pepsi, Lay's, Doritos, Tropicana, Gatorade and Quaker. It has been increasing the dividend for 39 years and yields 3.1%.
The bulk of dividend increases for these companies have been significant, rather than token increases merely to extend a company's steak. For example AT&T, not considered a high growth company, raised its annual dividend from $1.42 in 2007 to $1.76 currently, up 24% in 5 years. With low interest rates and the unpredictability of capital appreciation, the reliability of growing dividends is valued by investors who expect investments to grow over the years. Growing dividends are supported by increasing earnings, the prime reason for higher stock prices. Especially when stocks decline, dividends feel so good (even better when dividend are reinvested).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.