A Dividend for Year's End

December is fast upon us, which means the new year is just around the corner. Before penning your resolutions, why not consider the power of owning the most reliable companies that pay a dividend.

I'm not talking about finding stocks with the highest yield; we're looking for stability and market-beating returns. So let's start our search by looking at a select group of stocks that have annually increased dividends for at least 25 consecutive years.

All-star aristocrats
The S&P 500 Dividend Aristocrats list measures the performance of the top blue-chip companies that have consecutively increased their dividends for the past 25 years. Here's a look at a few favorites from the stocks on the Aristocrats list for 2012.

Company

Current

Dividend Yield

Years of Consecutive

Dividend Increases

3M (NYSE: MMM  ) 2.7% 53
Abbott Labs (NYSE: ABT  ) 3.5% 39
AT&T (NYSE: T  ) 6.0% 27
Coca-Cola (NYSE: KO  ) 2.8% 49
ExxonMobil (NYSE: XOM  ) 2.4% 29
McDonald's (NYSE: MCD  ) 2.9% 35
Target (NYSE: TGT  ) 2.2% 44

Source: Finviz and S&P Dividend Aristocrats.

While the stocks highlighted above span a variety of industries, all of them have increased their payout for more than 25 years and have a dividend yield above 2%.

Risky business
You may be wondering why I haven't included stocks with soaring yields. That's because companies boasting more attractive yields are often riskier in the event of an economic downturn. Consider former Aristocrats General Electric (NYSE: GE  ) and Bank of America (NYSE: BAC  ) .

GE was forced to cut its dividend by 68% in 2009, during the peak of the financial crisis. B of A shareholders were equally disappointed when the financial stock was booted from the list of Aristocrats for cutting its dividend around the same time.

Sustainable income
The Aristocrats in the chart above have more than just sustainable dividend yields. Conglomerate 3M produces a diverse range of products, making it a leader in various markets. The company has paid a quarterly dividend since 1916.

The stock market has given 3M's stock a rough ride recently, which can be attributed to the tense global economic climate. However, the conglomerate's balance sheet is stronger than ever, and its dividend yield is nearing 3%.

Another strong performer is Abbott Labs, which makes prescription drugs that many Americans rely on for maintaining their health. The big pharma stock delivers an attractive 3.5% dividend yield. However, drugmakers often struggle with patent expirations, which can cause fluctuations in their stock prices. Luckily, Abbott's famous arthritis medication, Humira, will keep its patent for another five years.

A rookie aristocrat
The S&P is set to welcome AT&T into the Dividend Aristocrat family this month. As the largest dividend payer in the world, the mobile carrier boasts a yield of almost 6%. The telecom titan has increased its dividends for the past 27 years straight.

While AT&T currently has the money to pay its dividend, the company's high payout could be a concern down the road, as carriers require heavy cash to sustain their networks.

A powerful brand
Global recognition and 49 years of consistently increasing its dividend put Coke at the top in terms of safety. As one of the most valuable brands in the world, Coca-Cola enjoys steady profits, which make the soda company more than able to support its dividend yield of 2.8%.

Strong balance sheets
Oil and gas company ExxonMobil joins the group with a history of raising its dividend every year since 1982. Additionally, the strong demand for energy bodes well for Exxon's business model. The company's balance sheet is in excellent condition, with a debt/equity ratio of only 10%.

Another player with a strong dividend and balance sheet is fast-food chain McDonald's. The restaurant chain is on par with Coke in terms of brand recognition, and McDonald's has increased its dividend for the past 35 years.

The company's franchise business model enables Mickey D's to collect rent and royalty income from franchised restaurants, which translates into steady profits for the company.

A dividend stock for 2012
I believe all of the stocks covered here are strong buys for income investors. However, Target stands out as a dividend growth stock. This may come as a surprise, because just a couple of months ago, consumer confidence dropped to the lowest it's been in two years. But the discount retailer has some things going for it, including eight straight quarters of year-over-year revenue and earnings growth.

Creating value consumers will buy
Target's dividends grew on average in excess of 20% over the past five years. The company's been paying a dividend since 1965, and has consistently increased its payout for the past 44 years.

Looking ahead to 2012, the Minneapolis-based retailer should continue to benefit from repeat customers using its RedCard, which offers shoppers a 5% discount on every item, every day.

Since launching its RedCard last year, sales from card members increased to 9.5% of total sales, up from 5.5% in Target's third quarter of 2010.

Target's strong growth, reliable dividend, and ability to drive repeat business make it a stock worth owning in 2012. Get your investments ready for a winning year, with this special free report that uncovers The Motley Fool's Top Stock for 2012

Fool contributor Tamara Rutter owns shares of Target. For more Foolish news and insights follow her on Twitter where she uses the handle @TamaraRutter. The Motley Fool owns shares of Bank of America, Abbott Labs, and Coca-Cola. Motley Fool newsletter services have recommended buying shares of 3M, Coca-Cola, Abbott Labs, and McDonald's, as well as creating a diagonal call position in 3M. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 13, 2011, at 3:38 PM, Hawmps wrote:

    One important factor that should be considered but not mentioned, in addition to consistently raising the dividend, but by how much? Example, MCD raised it's dividend 14.75% at the last increase and averaged over 25% annual increases over the past 5 to 10 yrs. Since 2001 the dividend increased from $0.225/yr to $2.80 with huge bumps in 2003, 2006, and 2007.

    WAG would also be on my all-star list. 36 yrs of increases and the increase has been roughly 20% to 25% annually since 2005 with the last increase being 28.5%. That's a dividend that's more than doubled since 2008, in the worst economic downturn in modern history.

  • Report this Comment On December 13, 2011, at 4:25 PM, TMFSocialME wrote:

    Hey "Hawmps" -- Thanks for the insight. Those are indeed important considerations.

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