Companies that consistently raise dividends tend to outperform those companies that do not increase dividends over time. Consistent dividend hikes show the company's inclination to boost shareholder value vis-à-vis higher cash distributions. Higher dividends year over year, help mitigate or offset inflation, generating higher total returns. There are companies that have been dedicated to raising dividend payouts to shareholders every year for at least 40 years. We believe investing in these stocks makes for a much better decision than investing in long-term Treasury bonds that have paltry yields.
Here is a list of five such firms, including some of the most reputable blue-chip companies in the United States:
Johnson & Johnson (JNJ) is an U.S.-based multinational pharmaceutical, medical device, and consumer goods company. It has a market capitalization of $181 billion. The company has seen its earnings per share (EPS) shrink at an average annual rate of 1.4% over the past five years. Despite this contraction, the company has been able to boost its dividends. Analysts forecast that the company will increase its EPS by an average rate of 6.5% per year for the next five years.
The company has raised its dividend every year since 1963. Currently, its stock yields 3.8%, about 130 basis points above the average yield for the industry. The company's payout ratio is 67%. Over the past five years, Johnson & Johnson has been raising its dividend at an average rate of 8.5%. In April 2012, the firm boosted its dividend by a slightly lower 7%. The company's current dividend is more than three times above the rate paid in 2002. Johnson & Johnson's competitors Pfizer (PFE), Novartis AG (NVS), and Covidien PLC (COV) pay dividend yields of 4.0%, 4.6%, and 1.7%, respectively. The company's shares are trading at a premium relative to the industry. Billionaires Warren Buffett and Ken Fisher are major investors in the company.
The Coca-Cola Company (KO) is a $172 billion multinational beverages giant. It has grown its EPS by an average rate of 11.3% per year over the past five years. Analysts forecast that the company will continue to boost its EPS at a somewhat slower rate of 8.2% a year for the next five years.
The company has been bolstering its dividend since 1963. It currently pays a dividend yield of 2.7% on a payout ratio of 54%. On average, the soft drinks maker has increased dividends at a rate of 8.6% per year over the past five years. As recently as February 2012, the company hiked its dividend by a slightly higher 9%. Today, the company's current annual dividend is 2.55 times greater than that paid a decade ago. Its peers Pepsico Inc. (PEP) and Dr Pepper Snapple Group Inc. (DPS) each pay a dividend yield of 3.1%. The shares of Coca-Cola Company are currently trading at a small premium relative to the industry. Billionaire Warren Buffett, with an 8.9% stake, is a major investor in the company.
Illinois Tool Works (ITW) is a $26 billion diversified industrial products and equipment company. The company has increased its EPS at an average rate of 8.2% a year over the past five years. Analysts expect the company to grow its EPS at a much faster 12.3% average annual rate for the next five years. This expectation is based on the assumption of a robust economic recovery.
This industrial products company has raised its dividend since 1964. It currently pays a dividend yield of 2.6%, a whole percentage point above the average yield for its industry. The company has been increasing its dividend at an average rate of 12.3% per year over the past five years. At present, its payout ratio stands at 37%. The company's dividend is now 3.2 times as high as that paid a decade ago. The company's competitors Dover Corp. (DOV), Danaher Corp. (DHR), and IDEX Corporation (IEX) pay dividend yields of 2.3%, 0.2%, and 2.1%, respectively. The shares of Illinois Tool Works are trading on par with the broad market and at a slight discount relative to the industry. Billionaire Steve Cohen had $75 million invested in the company at the end of first quarter of 2012 (check out Steve Cohen's stock picks).
Colgate-Palmolive (CL) is a $49 billion personal goods company producing a range of household, health care, and personal products. Over the past five years, the company has seen its EPS grow at an average rate of 15% per year. Analysts expect that the firm's EPS will continue to increase at a 9.2% average annual rate for the next five years.
Colgate-Palmolive has been boosting dividends each year since 1964. The company currently pays a dividend yield of 2.5% on a payout ratio of 50%. The personal goods maker has hiked its dividend at an average annual rate of 12.3% over the past five years. In March 2012, the company increased its dividend by a smaller 7%. The current dividend is more than 3.4 times higher than that paid a decade ago. The company's competitors Procter & Gamble (PG) and Kimberly-Clark Corporation (KMB) each pay a dividend yielding 3.6%. The shares of Colgate-Palmolive currently trade at a slight premium relative to the industry. Guru fund managers Jean-Marie Eveillard and Donald Yacktman hold stakes in the company.
Lowe's Companies Inc. (LOW) is a $33 billion home improvement retailer. With the collapse of the housing market, the company has seen its EPS contract at an average annual rate of 6.3% over the past five years. Despite the contraction, the company has raised its dividend. With an expected rebound in housing, the company's EPS is expected to expand at a robust average rate of 16.1% per year for the next five years.
The company has paid a higher dividend each year since 1963. Its dividend is currently yielding 2.4%, on par with the industry. The company's main competitor Home Depot (HD) is yielding 2.3%. Lowe's Companies' dividend has increased on average by 23% a year over the past five years. This month, the company hiked its dividend by a smaller 14%. The current dividend is exactly 16 times that paid a decade ago. The company's payout ratio stands at 42%. LOW is trading close to its industry P/E, but well above the ratio for the broader market. Fund managers John Griffin (Blue Ridge Capital - check out its top picks) and Jean-Marie Eveillard are bullish about the stock.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.