The Federal Reserve has been pursuing a policy of low interest rates to help a struggling US economy get restarted and plans to extend low interest rates into 2015. But low interest rates are hard on those who rely on investment income and many others who are planning for retirement. Earning high interest rates requires extra effort which requires examining stocks which may have been overlooked in the past. Below are 7 of the best of the highest yielding Dividend Aristocrats (each has raised the annual dividends for a minimum of the last 25 years). In addition to offering attractive yields, future dividend increases will raise annual income:
7 High Yield Dividend Aristocrats
Leggett Platt (LEG)
HCP Inc (HCP)
Johnson & Johnson (JNJ)
(1) LEG makes components for bedding, furniture and auto seating. 5 years ago it jumped the dividend to $1 just before the recession hit. Since then EPS has barely covered dividends, so annual dividend increases have been limited to 4¢. The stock is at the high end of its $20-24 range in the last 3 years. Analysts are forecasting EPS of $1.41 this year and $1.71 next year which could bring a larger dividend increase.
(2) AT&T descends from the original telephone company started by Alexander Bell. It provides traditional phones for landlines and is a major cellphone provider, best known for selling iPhones. The stock has been viewed as a boring yield stock, yielding 6%. But this year it is up $7 to a recent high and the yield has dropped to one of its lowest yields. Recent annual increases for the dividend have been 4¢.
(3) HCP Inc invests in senior housing, medical offices, nursing homes and hospitals. Recent annual dividend increases have been 6¢, but in 2012 the increase was 8¢ to $2.00. The stock was bid up this year, like most other yield stocks, to double its 2008 lows. A portion of the dividend is tax free or taxed at the capital gains rate.
(4) CLX products include its namesake bleach and cleaning products, Clorox Healthcare, Green Works home care products, Pine-Sol, Kingsford charcoal, Brita and Glad. Nearly 90% of the brands are #1 or #2 in their markets. The stock is up about 40% from the recession lows, helped by takeover rumors (nothing has come from that talk).
(5) JNJ is the largest health care company in the world. Numerous product recalls in recent years for over the counter medicines has hurt earnings. Those problems are being corrected. Management has survived challenges since 1886 and retains its AAA credit rating. The stock is at its the high since the last recession. Recent annual dividend increases have generally been 16¢.
(6) 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 is coping with rising food prices (as it has done recently) with EPS forecasted at $1.97 in the year ending June 2013 and $2.16 in the following year. Annual dividend increases have been 4¢ in recent years. The stock has traded sideways for 3 years, remaining flattish near $28
(7) KMB is a global paper company with 4 divisions: Personal Care, Consumer Tissue, K-C Professional and Health Care. The stock received little attention in recent years and its yield languished above 4%. Buying this year has raised the stock price to double its lows 4 years ago. Annual dividend increases have been around 16¢.
Fundamentals remain strong for these stocks. Yields on the first 3 companies have come down one percentage point in the last year because bargain hunters recognize the value of high yields coming from quality companies. Dividend increases have been modest, but all increases help those who need higher income to cope with rising expenses. SYY stock has not found favor with investors but has strong finances after increasing dividends for the last 43 years. CLX, JNJ and KMB stocks have done well. Investors have always been attracted by high yields and now they are more important than in the past.
The big picture is that companies raising annual dividends for decades are especially attractive for value investors. The US economy has been sputtering all year and the approaching fiscal cliff suggests drab economic performance will continue next year. But higher income should bring capital appreciation, key for successful investing.