The U.S. Dividend Champions List—produced by the DRiP Investing Resource Center—is the best compilation I know of domestic stocks that have raised their dividends for the past 25 years. I think it is superior to the more famous Dividend Aristocrats List from S&P. Its methodology seems more thorough, it is not restricted to stocks on the S&P 500 index, and its rules are well explained and observed religiously. It is a model of a well-documented, fact-based research tool. The Dividend Champions list is produced by David Fish, who I am happy to see contributes occasional articles and comments to Seeking Alpha. His insights benefit all dividend investors.
There is a lot of talk among dividend investors about the merits of high-yielding stocks vs. lower-yielding stocks. It is often said that the high yielders, while giving you a better initial payout, often represent risky propositions: Their high yield is the result of an excessive payout ratio, or a highly cyclical business, or a company whose stock price has tanked because the company itself is in trouble. It is said that they may have high yields, but the yields increase by miniscule amounts, if at all. The thinking goes, these are stocks with dividend cuts just around the corner and stock price collapses in the offing. Fans of high yielders, on the other hand, argue that they want the best return on their money now. They cannot or do not want to wait for lower-yielding stocks to get up to higher yields on cost, even if the lower yielders have extraordinarily high rates of dividend increases that will eventually propel them past the current high yielders.
I write an annual e-book on dividend-growth investing (current edition: The Top 40 Dividend Stocks for 2010: How to Generate Wealth or Income from Dividend Stocks), and I wrestle with these issues every year. There are always high-yield stocks on my radar screen, but to have a credible book with a year’s shelf-life, I cannot load it up with risky high yielders that may cut their dividends during the year. I use a variety of analytical tools to weed out the stocks whose dividends are most in peril. But the frequent appearance of this subject on Seeking Alpha got me thinking about it “inside out”: Are there any high-yielding stocks that have raised their dividends for 25 years straight?
One must first decide what is a “high” yield. We can all agree that 0.3% is a low dividend and 18% is a high one. But where do you draw the line? Recently, Dividends4Life wrote an article on dividend risk. He used a simple categorization system in which he considered dividends of 8% or more to be at the highest risk. (He also used other factors to come up with an overall risk score.) Let’s steal his definition: A stock is a “high” dividend stock if its current yield is 8% or more.
Are there any stocks out there with both a 25-year dividend increase streak and a current yield of 8% or more? Yes. Just one: CenturyLink (NYSE:CTL) has a current yield of 8.7%. It is the only stock on the Dividend Champions list with a yield of 7% or higher (Altria has a 6.99% dividend, which rounds to 7%).
Here are the 14 stocks on the Dividend Champions list with yields over 5%, in descending order of current yield:
- CenturyLink (CTL) 8.7%, 37 year streak of annual increases
- Altria (NYSE:MO) 7.0%, 42
- AT&T (NYSE:T) 7.0%, 26 years
- Pitney Bowes (NYSE:PBI) 6.7%, 28 years
- Washington REIT (NYSE:WRE) 6.3%, 38 years
- Integrys Energy Group (NYSE:TEG) 6.2%, 51 years
- Cincinnati Financial (NASDAQ:CINF) 6.1%, 49 years
- Eli Lilly (NYSE:LLY) 5.9%, 42 years
- Vectren (NYSE:VVC) 5.8%, 50 years
- Old Republic International (NYSE:ORI) 5.7%, 29 years
- Consolidated Edison (NYSE:ED) 5.5%, 36 years
- Leggett & Platt (NYSE:LEG) 5.2%, 39 years
- Black Hills (NYSE:BKH) 5.1%, 40 years
- United Bancshares (NASDAQ:UBSI) 5.0%, 36 years
It should be noted that I do not mean to suggest that these are all great stocks for dividend investors. Some of them have badly underperformed the market over the past several years, others have shaky balance sheets. Three have gone more than one year without raising their dividend (Integrys, Eli Lilly, Washington REIT). Their consecutive-year streaks may be ending this year.
One other point, regarding high yielders typically having lower rates of dividend increases. Among these 14 stocks, the average of their last increases was just 2.3%. Only one—Eli Lilly—exceeded 4%, and as we have seen, Lilly’s streak may be over. By comparison, the average most-recent increase for the 100 companies on the Dividend Champions list was 5.4%. So from this small sample, there does appear to be truth to the criticism that high yielding stocks tend to increase their dividends more slowly than lower-yielding stocks, and that over time, the “better” investments may be lower yielders with higher rates of dividend increases. (For an article explaining the dynamics over time of current yield with rate of increase, see “10 by 10: A New Way to Look at Dividend Yield and Growth.”)
Disclosure: Long CTL, T