Watch These Stocks for Imminent Dividend Hikes

Dividend stocks have made a huge difference for investors looking for income in a low-interest-rate world. As long as the Federal Reserve keeps rates low -- and increasingly, it looks like it could be years before rates rise -- income-hungry investors will need dividend stocks to help them make up the shortfall from fixed-income investments.

But you can't take for granted that a dividend stock will continue delivering the goods indefinitely. All too often, high-yielding stocks end up disappointing their shareholders by cutting dividends. Two of the most recent culprits include Annaly Capital (NYSE: NLY  ) and Frontier Communications (NYSE: FTR  ) , both of which made dividend cuts. Annaly has seen mortgage refinancing activity put pressure on its interest spreads, while Frontier reduced its payout to better reflect its cash flow.

There are some stocks, though, that do a good job of not only sustaining their dividends but increasing them over time. Some of these cream-of-the-crop candidates qualify as Dividend Aristocrats, which are S&P 500 members that have increased their dividend payouts each and every year for at least 25 years in a row. Below, we'll talk about five stocks that are due to extend their streaks soon -- but first, let's look more closely at why Dividend Aristocrats are worth following.

Go aristocratic
It's hard to do anything for 25 straight years. When you consider all the ups and downs a company sees in a quarter-century, it may seem remarkable that any company makes it onto the Dividend Aristocrats list. Between ordinary economic cycles and company-specific events that jeopardize payouts, hundreds of companies never get close to qualifying.

By contrast, though, some companies plan for rainy days constantly. They don't stretch during good years, keeping reserves they can use to get through tough years. It's those stocks that are most likely to have the cash on hand to pay rising dividends -- and make their shareholders confident in their long-term prospects.

What's coming
Often, stocks get in the habit of raising their payouts at the same time of year. Several companies have a record of doing so in the second quarter, and so with April nearly upon us, it's almost time to expect a new round of dividend increase announcements.

Procter & Gamble (NYSE: PG  ) is one such company. The consumer-products giant has faced some challenges from higher costs, but its well-known brand names have given investors a cushion against tough economic times before. A dividend increase from its current yield of 3.1% would make 56 straight years of higher dividends.

Similarly, ExxonMobil (NYSE: XOM  ) has an even higher profile. As a member of the Dow Industrials, Exxon has the financial resources to pay huge dividends, especially with high oil prices. But what's more remarkable is to think about how Exxon continued raising dividends when oil was below $20 -- less than a fifth of its current price. A boost would make three straight decades of annual increases.

Finally, Johnson & Johnson (NYSE: JNJ  ) is just about due for a dividend checkup. The company could have its golden dividend anniversary, with a 50th straight annual increase due later in the quarter. As a health-care conglomerate with a wide range of consumer-oriented products as well as goods for medical professional use, J&J has weathered big storms over the past few years while still pushing its payouts higher.

Go with the money flow
Dividends may come and go, but the best companies keep delivering year after year. It's not a sure thing, but relying on the Aristocrats for solid dividends has been a pretty good bet over the long haul.

If you'd like still more dividend stock ideas, don't stop here. Check out this free Motley Fool special report: "Secure Your Future With 9 Rock-Solid Dividend Stocks." The title says it all. Get your copy while the stocks are hot.

Fool contributor Dan Caplinger always likes stocks that pay more money. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. The Motley Fool owns shares of Johnson & Johnson and Annaly Capital. Motley Fool newsletter services have recommended buying shares of Johnson & Johnson, Procter & Gamble, ExxonMobil, and Annaly Capital, as well as creating a diagonal call position in Johnson & Johnson. 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 Fool's disclosure policy keeps paying you.


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  • Report this Comment On March 27, 2012, at 10:16 AM, evanzandt wrote:

    What is your take on Chimera Investment? According to http://bit.ly/cqigOh they have a dividend yield of almost 15%, the stock price is low and the EPS is more than the dividend payout.

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