As a stock index that follows the common stock prices of 500 publicly traded American companies, the S&P 500 is often referred to as a benchmark measure of the market itself. The current average dividend yield of the S&P 500 now rests at a mere 2.00% as of October 25, 2012. For investors capable of obtaining a similar yield or greater, they are able to maintain an income stream that stands a head above the market as a whole. Yet in sourcing one's income component in companies that have historically shown consistent dividend growth, an income investor can face the promising prospect of compounding earnings growth.
The strength of a dividend is often measured by its historical endurance over the course of the company's lifetime. In the same sense, the strength of a company is often measured by its ability to consistently return value to its shareholders through distributions. It remains a progressive indication when companies annually raise their dividend rates as an expression of their financial well-being. Such companies reflect their commitment to their shareholders and often reflect a rare form of consistency so often lacking on the stock market. The following five companies have annually raised their dividend rates for over 30 years.
- Medtronic, Inc (MDT). Medtronic operates through its six business segments that revolve around Cardiac Rhythm Disease Management, Spinal & Biologics, CardioVascular, Neuromodulation, Diabetes, and Surgical Technologies. The company both manufactures and sells medical therapies that function around specific devices. Medtronic currently supports a market capitalization of $43 billion and a reasonable forward price-to-earnings ratio of 10.88. Trading with similar volatility as the market, it currently maintains a beta of 1.03. The company offers a forward annual dividend of 2.5% with a quarterly rate of $0.26. The company maintains a comfortable payout ratio of 30% and has been raising its dividend since 1978.
- Walgreen Co. (WAG). As the operator of nearly 8,000 drugstores in the United States, Walgreen operates as a local provider of prescription and non-prescription drugs. The company was founded in 1901 and now maintains a presence throughout all 50 states as well as Puerto Rico. Walgreen currently supports a market capitalization of $33 billion and a below average forward price-to-earnings ratio of 9.47. Trading alongside the market when it comes to volatility, it currently maintains a beta of 1.17. The company offers a forward annual dividend of 3.1% with a quarterly rate of $0.275. The company maintains a comfortable payout ratio of 39% and has been raising its dividend since 1976.
- Pepsico, Inc. (PEP). Pepsico was founded in 1898 and has since grown to be one of the largest providers of beverages and snack foods. The company has operations around the world and supports some of the more recognizable brands under its wings. Some of these names include Lays, Ruffles, Doritos, Cheetos, Fritos, Quaker, Rice-A-Roni, Pepsi, Gatorade, Mountain Dew, 7Up, and Tropicana. PepsiCo currently supports a market capitalization of $107 billion and an above average forward price-to-earnings ratio of 15.62. Trading with significantly less volatility than the market, it currently maintains a beta of 0.33. The company offers a forward annual dividend of 3.1% with a quarterly rate of $0.538. The company maintains a feasible payout ratio of 56% and has been raising its dividend since 1973.
- Wal-Mart Stores Inc. (WMT). Wal-Mart operates as a large discount department store chain through its various brand names and has operations around the world. The company is currently the biggest private employer in the world with over 2 million employees. The company currently maintains over 10,000 retail units in over 27 countries. Wal-Mart Stores currently supports a market capitalization of $253 billion and an above average forward price-to-earnings ratio of 13.95. Trading with lower volatility than the market, it currently maintains a beta of 0.42. The company offers a forward annual dividend of 2.1% with a quarterly rate of $0.398. The company maintains a comfortable payout ratio of 32% and has been raising its dividend since 1975.
- Kimberly-Clark Corporation (KMB). As a manufacturer and marketer of healthcare products, Kimberly-Clark operates through its four business segments of Personal Care, Consumer Tissue, K-C Professional & Other, and Healthcare. The company primarily produces paper-based consumer products and sells its wares directly to supermarkets, retail outlets, drugstores, and other distributors. Kimberly-Clark currently supports a market capitalization of $33 billion and an above average forward price-to-earnings ratio of 14.87. Trading with volatility below the market, it currently maintains a beta of 0.32. The company offers a forward annual dividend of 3.4% with a quarterly rate of $0.74. The company maintains an above average payout ratio of 63% and has been raising its dividend since 1973.
As a result of their steady business models and continual income growth, these companies have continued to reflect their overall stability through their respective stock prices. This can be illustrated in the chart below as seen in the relatively horizontal price movement. Such stability remains a positive attribute for investors looking to replace their income with limited risk to their invested principal. Combined With a historically growing dividend trend, these companies provide a stable source of replacement income.
The overall picture of the dividend history remains an important figure to consider. The companies shown have increased their dividend rates over the years in demonstration of their safe yields. The ideal dividend portfolio offers a safe approach to the market in regards to the companies within its holdings. Preferably, these yields have also proven to grow over time. Considering the fairly priced multiples, overall aversion to volatility risk, and balanced play on the economy, the aforementioned portfolio appears to qualify as one such example of a safe income portfolio.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.