Stock prices have risen this year despite a lack of supporting economic data. The Dow Jones Industrial is up 7% YTD, while the US economy is bumping along with a substandard growth rate of 2% or less. Europe is in the middle of a recession while it tries to repair sovereign debt problems in weaker countries. China is changing leadership, done every 10 years, and has to cope with its slowest growth rate in years, hurt by sluggish and weak economies around the world.
I am a big fan of earning investment income from dividends for retirement and traditional investing. The best stocks for dividends are Dividend Aristocrats, which have raised annual dividends for at least the last 25 years. There are only 51 companies from the S&P 500 Index that qualify along with a handful of smaller companies. Below are 12 Superior High Yielding Dividend Aristocrats:
Leggett & Platt (NYSE:LEG)
Johnson & Johnson (NYSE:JNJ)
Procter & Gamble (NYSE:PG)
Emerson Electric (NYSE:EMR)
Genuine Parts (NYSE:GPC)
Smart retirement investors want high income, capital growth and defensive characteristics from investments. In the challenging recession 4 years ago, these companies increased dividends when many highly regarded companies ended their streaks. During the recessions in 2000, 1990, and, for most of these companies, through the very brutal recession in the early 1980s, these companies were raising annual dividends.
The 10-year Treasury bond yield is less than a meager 2% (even though there have been warnings by credit agencies about a reduction in the credit rating). A 3+% yield from these stocks represents a significant contribution on earning a target rate of return. In the last 2 decades, dividends have provided more than 40% total returns for the S&P 500 Index. Stocks have an added advantage of expected annual dividend increases. Since the start of 2000, capital appreciation has been uneven. The Dow Jones Industrial has risen only 14% since the start of 2000. Growing dividends come from rising earnings which should lead to higher stock prices. The 3 highest yield stocks are above 4%.
AT&T is the old line telephone company with traditional phones using landlines and also sells iPhones for its cell phone business. It has been thought of as a high-yield dividend stock while raising annual dividends.
HCP is a REIT that invests in healthcare real estate: senior housing, medical office, nursing and hospitals. This is the only REIT that is a Dividend Aristocrat and a portion of its dividend is non-taxable.
LEG is an international diversified manufacturer that produces components for bedding, home furniture, automotive seating, office furniture and retail fixtures. After a big increase in the dividend 5 years ago, annual increases have been 4¢.
AT&T and LEG stock prices have had modest gains in the last 10 years, a period when many highly regarded stocks (with lower yields) have declined. However, HCP stock has doubled. Annual dividend increases for all 3 have been roughly 4¢.
The rest of the stocks have had better earnings growth and annual dividend increases have been generally 12¢ or 16¢. These companies have been raising dividends much longer than the minimum 25 years. GPC, EMR, PG and KMB have streaks of at least half a century. All these companies share a commitment to reward shareholders with total return, dividends and capital appreciation.
After the election is over, more attention will be paid to the fiscal cliff at the close of 2012. If Congress doesn't get its act together, higher taxes and significant federal budget cuts will bring on another recession which is being ignored by the stock market. Especially during these uncertain times, Dividend Aristocrats provide a degree of safety (desirable for retirement investments) because their dividends are expected to rise before and during retirement. Capital appreciation should follow. Investment gains will reward retirement investing.