The Dow Jones Industrials is up 6% in 2012, largely because of a strong June and July. But rising stock prices bring lower yields when rates on short-term debts are slightly above zero and longer debts are near or at record lows. Many investors are in search of more income with minimal risk along with growth.
I like Dividend Aristocrats, companies with records of raising annual dividends for at least the last 25 years, because their dividends and annual increases are all but guaranteed, even in difficult economic times. Patient investors appreciate their value. Three years ago, when other Dividend Aristocrats had to end their streaks, companies in this group kept raising dividends.
Last year, the S&P changed its methodology for calculating streaks of higher annual dividends and added 10 new stocks, a very large number. There are now 51 S&P 500 Dividend Aristocrats, along with a handful of companies that are not S&P 500 companies. Below are the newly recognized Dividend Aristocrats that merit more attention:
AT&T, Inc. (T)
HCP, Inc. (HCP)
Sysco Corp. (SYY)
Genuine Parts (GPC)
Illinois Tool Works (ITW)
T Rowe Price (TROW)
Franklin Resources (BEN)
In 2012, the two highest yielding stocks from this group have been popular - which has reduced their yields. AT&T is known for selling iPhones in its cell phones business, and the stock is up a third YTD. But the reduced current yield is still of interest for investors seeking increased income. HCP is an REIT that invests in healthcare industry and senior housing properties. Dividend increases in recent years have been modest, but this year it was increased 8¢ to $2.00. In addition, a portion of the dividend is not taxed or taxed at a reduced rate in taxable accounts.
NUE and SYY have seen small declines this year. NUE is the largest steel producer in the US. Mixed economic trends in the US are affecting steel buyer confidence for all products. The last 2 annual dividend increases have been only a penny each. In this difficult year, EPS is expected to be around $2, which will allow the streak of increases to continue. Next year, EPS is forecasted to exceed $3 and that could bring a bigger dividend increase. SYY provides supplies for foodservice businesses of all sizes throughout the US, Canada and Ireland. Products include ingredients needed to prepare meals along with ancillary preparation and serving items. Higher food costs squeeze margins, but dividends are being raised.
The remaining stocks with lower yields generally have had stronger growth trends. The stocks of TROW and BEN, two prominent financial managers, have quadrupled in the last 10 years. CL and GPC doubled, ITW is up about 65%, while MDT is a little lower. Growing earnings are the basis of rising stock prices and dividends increases.
Dividends have become more important for increasing wealth. Capital appreciation for major stock averages has been weak (at best) since 2000. With growing global economic uncertainties, that trend can continue. Companies with track records of increasing dividends for stockholders should bring financial rewards in the future. In addition, growing dividends are important for capital appreciation. These stocks deserve consideration by value investors for increased income and growth.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.