6 Stocks With Consistent Dividend Increases

by: Avi Morris

An excellent source for quality high yield stocks is the Dividend Aristocrats (companies which have increased dividends for at least the last 25 consecutive years). Only 51 S&P 500 stocks qualify along with a handful of companies with smaller market caps. Six of the highest yielding (at least 3.7% yields) Dividend Aristocrats deserve consideration for increasing investment income. In all fairness, higher yields carry higher degrees of risk and those with the highest yields carry the greatest risk.

(1) Leggett & Platt (NYSE:LEG) makes components for bedding, furniture and auto seating. The $23.18 stock yields 4.8% and has been increasing annual dividends for 41 years. Five years ago it made a substantial increase in the dividend to $1 just before the recession hit. Since then, annual increases have been limited to 4¢ and earnings have barely covered the dividend. After reporting Q2 earnings, LEG projects 2012 EPS of $1.35-1.50.

(2) AT&T descends from Ma Bell years ago. It provides traditional phones using landlines and is a major cellphone provider, best known for selling iPhones from Apple (NASDAQ:AAPL). The stock received minimal favorable attention for years, offering yields around 6%. But the stock is up $6 YTD to $37.23 which has reduced the yield 4.7%. The $1.76 dividend has been increased 4¢ annually.

(3) HCP Inc (NYSE:HCP), the only S&P 500 REIT, invests in the healthcare industry including senior housing, medical offices, nursing homes and hospitals. Recent annual dividend increases have been 6¢, but in 2012 the increase was 8¢ which increased the dividend to $2.00. The $45.57 stock yields 4.4%. A portion of the dividend is not taxed or taxed at the capital gains rate.

(4) Cincinnati Financial (NASDAQ:CINF) is one of the largest property casualty insurers. Insurance company earnings are difficult to understand because casualty losses and investment income (with gains/losses) vary widely from one year to the next. Record breaking catastrophe losses in 2011 hurt the company badly. HCP has raised annual dividends for more than half a century but increases have been 2¢ recently. Last year the increase was cut to a penny, raising the annual dividend to $1.61. The $38.18 stock yields 4.3%.

(5) Con Edison (NYSE:ED), the largest investor-owned utility, supplies to the New York City area. This regulated business is not glamorous, but ED has increased annual dividends for the last 37 years. The $63.59 stock provides a 3.8% yield from the $2.42 dividend. Annual increases have been 2¢ in recent years.

(6) Sysco (NYSE:SYY) is the global leader in food products for restaurants, healthcare and educational facilities, lodging establishments and customers who prepare meals away from home. It serves more than 400,000 customers. The $1.08 dividend is well covered with about $2 EPS and the $28.69 stock yields 3.7%. Annual dividend increases have been 4¢ in recent years.

Pitney Bowes (NYSE:PBI), the leader in mail services and products, has the highest yield for an S&P 500 Dividend Aristocrat at 11% but is ignored because of its high degree of risk. For obvious reasons there is an army of short sellers who have already buried the company. The stock will only appeal to those who are willing to fight this army.

Dividends and companies with impressive records of raising dividends don't get enough respect. Even in this soggy year for the stock market, these stocks have done fairly well. ATT, HCP and CINF have good gains YTD.

Even though these stocks are thought of as yield plays, there is the potential for capital appreciation. Kimberly-Clark (NYSE:KMB) was viewed as a dull paper company despite an excellent record of raising dividends with annual increases of roughly 16¢. The yield was over 4% for many years. In the last year the stock shot up from the $60s into the $80s, $20 above where it has been for years.

Dividends are important for capital growth, roughly 40% of investment gains come from dividends. After uneven capital appreciation in the last decade, dividends have been making a more significant contribution to investment gains. My favorite continues to be LEG. Analysts are forecasting EPS will rise to $1.33 this year and $1.70 next year. If they are right, larger dividend increases can bring higher stock prices.

Disclosure: I am long PBI.