Investors can't get enough dividend stocks. With a flat market in 2011, dividend payments were even more important -- because without them, many investors wouldn't have seen any gains at all on their investments.
Unfortunately, you can never take it for granted that stocks you own are going to keep boosting their dividend payouts. But a select few companies have put together impressive track records of doing exactly that, year in, year out. Even better, many of those elite dividend stocks are pretty predictable about when they make their dividend increases for the year. That's the next best thing to a sure thing, and it's worth looking at stocks before the rest of the world hears about their next payout boost.
Make a list, check it twice
If you hang around The Motley Fool, you'll inevitably hear about a group of companies called the Dividend Aristocrats. These companies are all on a short list that Standard & Poor's puts together every year. A stock that's a member of the S&P 500 becomes eligible to be a Dividend Aristocrat once it pays increasing annual dividends to its shareholders for 25 straight years.
The reason why so many investors pay attention to the Dividend Aristocrats should be obvious: It's tough to get onto the list, and staying there can be a huge challenge. Over the course of a quarter-century, the economy typically cycles back and forth between expansion and recession many times, forcing companies to endure changing conditions repeatedly.
In order to be a Dividend Aristocrat, a company has to have the foresight and financial discipline not to overextend itself during the good times while retaining a healthy reserve that can support the dividend during lean years. Although some companies finance their dividends through debt, it's much more common to see the best dividend stocks have underlying business models that produce a lot of cash -- cash that is available every year without fail to return to shareholders. A track record of doing so gives investors confidence that a stock can get through downturns without worrying.
Bring on the money!
The same discipline that helps make a company a Dividend Aristocrat also helps us predict when to expect dividend increases. Many companies on the list make decisions to raise their payouts at the same time every year. Some wait until the bitter end, but quite a few don't keep shareholders in suspense: They get their payout hikes done early every year. Below, I'll talk about four of those companies.
Conglomerate 3M (NYSE: MMM ) has a 53-year track record of annual dividend increases, putting it near the top of the list in terms of streak length. With a yield of 2.7%, it last raised its dividend last February, giving investors a 5% raise from $0.525 per quarter to $0.55. Expect an announcement to come in early February.
On the other hand, paint maker Sherwin-Williams (NYSE: SHW ) has a shorter 33-year dividend streak and a lower yield of just 1.6%. Moreover, its most recent dividend increase last February was only half a penny, taking the quarterly payout up to $0.365. Last year's increase was announced Feb. 16, so you probably have six weeks before you'll see what could easily be another $0.005 move upward for the fifth consecutive year.
Pitney Bowes (NYSE: PBI ) has also been splitting pennies in recent years. The company known for its mailing equipment has a 29-year streak on the line. Its 8% yield is impressive, but some fear that the business may not support a much higher payout as the company faces higher competition. The dividend went from $0.365 to $0.37 per share last year, so come next month, a similarly stingy increase shouldn't surprise you.
Last, Stanley Black & Decker (NYSE: SWK ) is looking to extend its 44-year track record of higher dividends. With a 2.4% yield, the company made a huge dividend increase last March, boosting its payout more than 20% to $0.41 per share quarterly. Late February is the most likely time to expect an announcement from the company.
When things go wrong
Unfortunately, even being an Aristocrat doesn't guarantee a dividend increase. Going into 2011, CenturyLink (NYSE: CTL ) had a long streak of having increased its dividends during the first quarter of each year. But the company chose to keep its dividend constant, breaking the streak and getting itself kicked off the Aristocrats list this year.
But that's a pretty rare event. Most Aristocrats have every incentive to stay on the list. So if you want higher dividends, these stocks are worth keeping an eye on -- and could get a bump in interest if they deliver on their anticipated dividend increases.
Some dividend stocks are worth owning even without a long track record of annual increases. We've found 11 powerful stocks and named them in The Motley Fool's latest special free report on dividends. Don't wait -- get your free copy right now and start the year off right.