The Best Stocks That Have Increased Dividends for Over 20 Years

I’ve been reviewing my portfolio performance recently and assessing what is working and what isn’t. There is a constant refrain: The market is in love with yield right now and dividend paying stocks are working. In one sense, it isn’t surprising. As treasury yields sink to ever lower yields, blue chip yields are increasingly in demand. Let’s put it this way. You can get 1.7% yield on US GDP for 10 years or you can get a bunch of stocks (whose revenues actually comprise a large part of US GDP) currently yielding more than 3% with the chance of increases in the next 10 years. Is it any wonder investors are chasing yield?



Dividend Champions

Of course a decent current yield is not enough. Investors would be better advised to look for stocks that have a history of increasing yields. With this in mind, I want to focus on companies that have increased their dividends consistently over the last 20 years.



I chose these fifteen.

Note that they have been sorted in terms of ‘current D/forecast E,’ and this is just an idea to estimate how much leeway these companies have in terms of increasing their dividends. The ideal candidate is a dividend aristocrat with good leeway and a current high yield.

I'm going to feature five of these stocks.



The Five Best Dividend Paying Stocks

By sheer coincidence, the five I am going for are bundled together in the middle of the table.



I’ll start with Johnson & Johnson (NYSE: JNJ). This is a stock I hold and believe has very interesting prospects. It has had execution issues over the last few years –not least with high profile product recalls- and top line growth has been hard to come by, but I think things are looking better. The Synthes acquisition gives it strong market share in a growth area of medical devices and it has a number of new drug launches coming which should drive pharmaceutical growth in future.

As for its consumer products division, it simply needs to execute better; but this is a good thing because it implies that its key profit driver is not something exposed to the economy. I like the stock and think it gives good balance to a portfolio.



Next up is a stock I am not in love with from an operational perspective, but it does offer good prospects for dividend hunters. Procter & Gamble (NYSE: PG) has had it tough over the last few years. Its traditional strategy during downturns (try to hold pricing at the expense of market share and wait for the upturn) has been particularly challenged by the long period of slow growth that we are in. Its stable of classic brands has been under attack from all sides and the company hasn’t performed as well as it could operationally.

The reaction has been to shift gears and try to take pricing while engaging its promotions. It hasn’t really worked that well but investors should feel optimistic about a more benign commodity price environment going forward, and PG does have some fantastic brands.



Kimberly-Clark (NYSE: KMB) is an odd sort of stock. Superficially it appears to be a bog standard company that is as dull as, well, toilet paper and Kleenex. But actually there are a few things to consider here. Is it the sort of company that will get ruthlessly attacked by private label in-store brands? Is it an emerging market growth story as it penetrates new territories with its well known brands?  I confess I am not smart enough to know the answers to these questions, but analysts have the stock on mid single digit growth rates for the next couple of years and if the dividend grows at that rate too then the stock looks like good value.

 

Abbott Labs (NYSE: ABT) is an interesting case because the company is going to be split up into a medical diagnostics and device company and a pharmaceutical company to be named Abbvie. Both companies are attractive, and most analysts think there will be some acquisition activity from them after the split. My concern with Abbvie would be over its reliance on its blockbuster drug Humira. The challenge is to use cash flows from this drug (primarily from rheumatoid arthritis) in order to invest in new drug development. Humira is a TNF Blocker type of treatment and a whole new class of drugs is coming called Janus Kinase Inhibitors (JAK), which may challenge their position in future.



The last of the featured candidates is a stock that I knew little about before writing this article. It’s great to do these things and discover new avenues of research out of them. Community Bank System (NYSE: CBU) is an upstate New York and Pennsylvania based local bank that claims to be 1^st and 2^nd in 70% of its markets. EPS has grown at a 9.5% CAGR over the last five years and dividends have grown at 4.7% too. This is hugely impressive given the carnage inflicted on the banking sector in recent years, and in that time it increased dividends every year. The bank’s Tier 1 capital ratio looks okay at 8.98% but it looks great when compared to the asset quality of this bank.

Net charge-offs over average loans are at a paltry .24% and non performing assets/total assets are at .49%. These are very good metrics. At first I was tempted to put this down to some sort of positive local economic factor (in the way that the Texan banks have been doing well) but actually upstate New York is underperforming the rest of the nearby economy in terms of job growth. I think this a well run bank and well worthy of a closer look for investors looking for a high yield financials.



Conclusion

They all look like strong companies that are worthy of a place in a long term high yield portfolio. Raising dividends consistently over 20 years is a sign of a company that is disciplined in its commitment to shareholders. The Federal Reserve's desire to keep rates low is undiminished so I suspect more and more investors will start focusing on yield.