Dow Jones Industrials has had a substantial run in the last 6 months, an almost 3000 advance from its lows. Higher stock prices have reduced yields, making it more difficult to earn high income in retirement accounts. Retirees are living longer and need more income to pay for added retirement costs, which are subject to inflation. Higher medical and related costs must be paid, especially with increased costs in later years.
Dividend Aristocrats, with records of raising annual dividends for at least the last 25 years, are excellent sources of investment ideas, particularly for long-term investors. In the brutal recession 3 years ago, many of the biggest companies ended dividend streaks of more than 30 years. Surviving Dividend Aristocrats felt the effects of the recession but were able to extend their streaks because of stronger financials.
Last December, S&P made changes in calculating the streaks of higher dividends. As a result 10 stocks, a very large number, were added to the list. Allowing for the removal of one stock, which failed to increase its dividend in 2011, there will be 51 Dividend Aristocrats in 2012. Going forward, it is unlikely that any Dividend Aristocrat will be removed for some time. Generally a few will be added in December when their streaks of raising dividends reach 25 years.
Because they are new to the group, these stocks deserve more notice:
HCP Inc. (HCP)
Genuine Parts (GPC)
Illinois Tool Works (ITW)
T Rowe Price (TROW)
Franklin Resources (BEN)
AT&T and HPC have 5%+ yields. AT&T, known for selling iPhones in its cell phone business, has had a sideways stock for the last decade. But for income accounts, the high yield (with growing dividends) is attractive. HCP is a REIT investing in properties serving the healthcare industry and senior housing. Dividend increases in recent years have been modest, but good enough to extend its streak. For personal accounts subject to taxation, there is tax advantage with the dividend.
SYY and NUE are next in line with yields near 4%. SYY provides food and related products for the food service and food-away-from-home industries. Dividends have been raised for more than 40 years. High food prices are hurting margins, but it expects increased earnings in 2012. NUE is a steel company, which is still recovering from a severe downturn in the recent recession, but annual dividends have been inched higher to maintain its record of raising annual dividends every year since the first dividend in 1973.
The 2 longest streaks belong to GPC with a 56-year streak and ITW with a 49-year streak. Both stocks have risen more than 50% in the last 10 years. GPC distributes automotive replacement parts, industrial replacement parts, office products and electrical/electronic materials in the U.S., Canada and Mexico. ITW has divisions in Transportation, Power Systems & Electronics, Food Equipment, Construction Products, Polymers & Fluids Decorative Surfaces.
MDT makes medical technologies for many of the most pressing medical conditions in chronic diseases. Sales in emerging markets (i.e. China, India and Brazil) account for 9% of total business and should contribute substantially to future growth. CL markets consumer products around the world. The stock is up more than 50% in the last 10 years and the dividend has been increased for 35 years
TROW and BEN are two very large fund managers with excellent records of growth. Their yields are at the low end of the group, but the stocks have more than tripled in the last 10 years (a difficult time for many highly regarded stocks).
These new members represent an assortment of companies that share a commitment to reward shareholders with growing annual dividends. My favorite from above is NUE, but only for the adventuresome. The growth of dividends is impressive for any company, especially for a steel company. EPS suffered in the recession. From a record $6 in 2008, EPS plunged to a loss in 2009 but rebounded to $2.45 last year and analysts are forecasting $4 this year. Over the short term, this is a play on economic recovery.
The remainder have different investment qualities and should be considered for retirement accounts with basic goals of high yields, safety and growth. Each stock is a different blend of those goals and at least one or 2 should be helpful for most accounts. The expectation of rising streams of dividends makes them more attractive.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.