Avi Morris'  Instablog

Dividends and capital gains are the 2 ways for earning money when investing in stocks.  With stocks experiencing one of their best years in history, dividends are being ignored even though they can be helpful earning a steady rate of return.  The S&P 500 Dividend Aristocrats are members of the group required to have a minimum track record of 25 consecutive years of paying higher annual dividends.  Only about 10% qualify.  Below are 2 excellent companies, one which everybody knows & a second which is not as well known.  Each has an outstanding and consistent record of dividend growth, a valuable tool in earning high rates of return.

Coca Cola (KO), founded in 1886, has the best known brand names in the world.   They sell Coca Cola and related cola syrups to their bottlers which are in turn sold to retail businesses around the world.  Coca Cola claims to be in more countries than the UN.  Additional drinks include Minute Maid, A&W Root Beer, Glaceau, Dasani and brands specific to foreign countries.  In the last 2 decades, the stock had a run from 20 to over 80 in the middle of the first decade.  Then it pulled back to the 40s where it has largely traded since then.  In the last 10 years sales doubled to $32 billion, EPS and dividends have more than doubled.  Their finances are quite strong, allowing them to purchase more than 1.2 billion shares of treasury stock. Coca Cola has increased the annual dividends for more than 40 consecutive years.  At 53, Coca Cola still yields over 3% (far above yields on short term instruments).  With aggressive expansion overseas, i.e. China, Russia, etc., revenues and profits should keep growing so they can continue their streak of higher annual dividends.

Automatic Data Processing (ADP) does not have a well known brand name, but it has an outstanding track record of growth.  They were founded 60 years ago to provide business services (many are payroll related) and this has been a growth business.  In the prior decade the stock went from 6 into the 40s as markets reached record highs in 2000.  Even though the current decade has been a tough time for the stock, earnings per share have doubled (aided by treasury stock purchases) while the stock has mostly traded in the 40s.  Increasing the yearly dividends raised the yield from 1% to over 3%.  A month ago, in the annual report, their president talked about the strength of their business models and said, "I remain optimistic about out longer-term objective to achieve high single-digit annual organic revenue growth, supplemented by acquisitions, with at least 15% earnings per share growth."  He also mentioned that ADP is one of a handful of companies with AAA credit ratings.  At 41, the stock yields a respectable 3.3% which should continue to increase going forward.

Dividend Aristocrats are high quality companies (like these).  They have outstanding track records, especially when measured by consistent growth of dividends, as rewarding investments over the long run.  With a yield of 2-3% (or more), earning an annual rate of return of 10% becomes easier.  Steady annual dividend increases helped with reinvested dividends provide even more help.  One word of caution.  There are a number of Dividend Aristocrat lists posted and by definition they have to be at least 1 year old.  I estimate about 10 companies have been removed from the list in the last 2 years.  When evaluating any company, it is important to verify that dividends have been increased particularly in the last 2 years (a time when quite a few have not continued their streak of higher annual dividends).  Gains from dividends deserve more respect.

Disclosure:  Long K