Companies with long histories of paying and growing dividends are best suited for income portfolios. The longevity of their commitment to raising shareholder value through consistent dividend payouts and increases is a clear indicator of these stocks' investment security and return potential.
There are a limited number of stocks that comprise the S&P500 Dividend Aristocrats index, a benchmark that tracks total returns of the stocks that have increased dividends for at least 25 years in a row. Here is a closer look at five such stocks that have paid dividends for more than 30 years. They include PepsiCo Inc. (NYSE:PEP), McDonald's Corp. (NYSE:MCD), Abbott Laboratories (NYSE:ABT), Automatic Data Processing Inc. (NASDAQ:ADP) and Wal-Mart Inc. (NYSE:WMT). These five dividend aristocrats carry dividend yields of at least 2.2% and the average yield for all five of 2.9%. Their dividend payout ratios range between a low of 35% for Wal-Mart to a high of 63% for Abbott Pharmaceuticals.
PepsiCo Inc. has paid dividends since 1952, and has raised dividends for 40 consecutive years. The company is a $110 billion maker of soft drinks and snacks. It pays a dividend yield of 3.0% on a payout ratio of 53%. The company's rivals, Coca-Cola Company (NYSE:KO) and Dr Pepper Snapple Group (NYSE:DPS), boast dividend yields of 2.6% and 3.1%, respectively. Over the past five years, the company hiked its dividend at an average annual rate of 10.3%. This year, the company boosted its payout by a smaller 4%. The company is expected to accelerate its earnings per share [EPS] growth to 6.3% per year for the next five years, 66% higher than the average annual rate of growth realized over the past five years.
PepsiCo is looking to boost its EPS through volume increases and expansion in key international emerging markets. For example, PepsiCo was among the very first U.S. companies to enter China. The company's revenue from emerging and developing markets has increased from 22% in 2006 to 34% of revenues in 2011. PepsiCo controls 64% of the U.S. snacks market and as much as 60% of the market in Brazil. For reference, the company's beverage and food revenues are almost equally split. The company is now aiming to bolster its presence in the market for nutritional products, such as yogurt. This is in line with the global trend of eating and drinking healthy products. On a forward P/E basis, PepsiCo's stock is trading at a discount relative to its peers. The stock is changing hands at $70.17 a share, close to its 52-week high. Among famous investors, the company is popular with billionaires Jim Simons, George Soros, and Donald Yacktman.
McDonald's Corp. has paid dividends since 1976, and has raised them for 35 consecutive years. The company has a market capitalization of $91 billion and is the world's largest chain of hamburger fast food restaurants. It pays a dividend yield of 3.2% on a payout ratio of 52%. Its peers Yum Brands (NYSE:YUM), Darden Restaurants (NYSE:DRI) and Wendy's Company (NYSE:WEN) pay yields of 1.8%, 3.9% and 1.7%, respectively. McDonald's has posted robust dividend growth over the past five years, averaging 22% per year.
Despite its reaching maturity in developed markets, it is increasing customer traffic and sales by introducing innovative product offerings, including, as of late, coffee drinks, which make it a major competitor of the robustly growing coffee powerhouse, Starbucks. McDonald's is also growing internationally, given that 60% of McDonald's sales are from abroad. In the medium term, the weakening international sales, especially in Europe, and a strengthening dollar are adversely affecting the company's operations. However, in the long run, the company's international presence bodes well for continued growth. Analysts forecast that the company's EPS will expand at an average rate of 9.8% a year for the next five years. Its stock is trading on a forward P/E below that of its industry and the company's own historical metrics. The stock is changing hands at $89.30 a share, up 4.3% in a year. Billionaires Jim Simons, David E. Shaw (D.E. Shaw. See its top picks), and Ken Griffin are bullish on the stock.
Abbott Laboratories has paid dividends since 1926, and has raised them for 39 years. The company is a leading pharmaceuticals and nutritional company, with a total market capitalization of $102 billion. It pays a dividend yield of 3.1% on a payout ratio of 63%, somewhat less than its core competitors. Rivals Johnson & Johnson (NYSE:JNJ) and Merck & Co. Inc. (NYSE:MRK) pay dividend yields of 3.6% and 4.0%, respectively, while Amgen (NYSE:AMG) does not pay any regular dividends. The company's EPS expanded at an average rate of 22% per year over the past five years. It is forecasted to grow at a slower average rate of 8.5% per year for the next five years.
The company is facing patent expirations that will increase competition from generic drug makers, forcing price cuts, and thus putting pressure on margins. However, Abbott's product lines are highly diversified, given that the company offers a wide range of pharmaceutical and nutritional products as well as medical devices. The company also has a large international presence, with almost 60% of its total sales coming from abroad. This year, the company will split into two businesses, with the spin-off going under the name of Abbvie. The company's shares are currently trading at a discount to the pharmaceutical industry. The stock is changing hands at $64.75 a share, up nearly 22% in a year and at its new 52-week high. Billionaires Ken Griiffin, Ken Fisher, and David E. Shaw are fans of the stock.
Automatic Data Processing Inc. has paid dividends since 1974 and has raised them for 36 consecutive years. The company is a $28 billion payroll processing and outsourcing firm. It pays a dividend yield of 2.8% on a payout ratio of 57%. The company's core competitor, Paychex, pays a high dividend yield of 4%. ADP has raised dividends at a 12% average annual rate over the past five years. The company's EPS expanded at an average rate of 11.6% a year over the past five years. Analysts forecast that its EPS growth will average 9.6% per year for the next five years. The company is adversely affected by the weak labor market in the U.S; however, it has weathered the economic cycles well, raising dividends even during the bad times. The company will continue to withstand the headwinds going forward, so continued dividend payout raises can be expected in the future. The stock is currently changing hands at $56.47 a share, up 5.2% in a year. It has a forward P/E above that of its industry, on average. Guru fund manager Jean-Marie Eveillard (First Eagle Investment Management. Check out its holdings) and billionaires David E. Shaw and Jim Simons hold large positions in the stock.
Wal-Mart Inc. is another dividend aristocrat on the list of stocks for the winning income portfolio. The company has raised its payout every year after commencing a dividend in 1974. The company is an international discount retail giant with $240 billion in market capitalization. It has raised its dividend at an average annual rate of 14.5% per year over the past five years. This year, the company raised its dividend by nearly 9%. Currently, the discount retailer pays a dividend yield of 2.2% on a payout ratio of 35%. The company's peers, Costco Wholesale Corporation (NASDAQ:COST) and Target Corp. (NYSE:TGT), pay dividend yields of 1.2% and 2.5%, respectively. The company is an American discount retail legend which is increasing its international presence. It has just celebrated its 50th birthday, and looks poised to celebrate many more successful years down the road. Wal-Mart trades at $71.08 a share, at its new 52-week high. The company's shares are priced on a forward P/E, almost on par with that of its industry. Legendary investor Warren Buffett's Berkshire Hathaway is among major Wal-Mart investors (see Warren Buffett's top picks).
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.