Dividend Stocks That Keep On Giving

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Investors these days are inundated with uncertainty.  Not to recite the litany of potential problems threatening the health of the increasingly weak global recovery (European debt, slowing growth in China, the U.S. recovery losing steam, etc., etc., etc.), but we have a lot weighing on our shoulders.  Navigate to any news site and you get swamped by these stories.  Enough of it. 

All this noise gets distracting.  Although these problems are not to be completely overlooked, investors need to fight to remember some of the most important (and oftentimes basic) tenets of investing at times like these.  So, enough with the negativity.  We here at the Fool invest for the long term exactly for that reason: We don’t know what the future will hold, especially in the short term.  However, we do know that buying quality companies at low prices, reinvesting the dividends, and holding them for the long term generally produces at least satisfactory results, and hopefully much better.  In line with this, I’ll present you with 13 cheap, high-yielding stocks that have impressive histories of growing those payouts.

Good and getting better
The companies below share a number of traits.  They all have market caps over $2 billion (so you avoid buying into more risky micro-cap companies).  They each have yields in excess of 3% and trade for less than 15 times their current diluted earnings per share.  Finally, they all have grown their payouts at a rate greater than 20% annually over the last 10 years.  Let’s see what they have to offer. 


Dividend 10-Year CAGR*

Dividend Yield


Philippine Long Distance Telephone 51.8 7.2% 10.2
Southern Copper (NYSE: SCCO  ) 37.8 8.9% 11.1
Darden Restaurants 37.5 3.9% 13.6
Mattel 30.5 3.5% 13.1
Intel Corporation (Nasdaq: INTC  ) 27.4 3.8% 10.2
BHP Billiton 24.5 3.1% 8.0
Hasbro (Nasdaq: HAS  ) 22.0 3.5% 13.1
Telkom Indonesia (NYSE: TLK  ) 22.0 6.1% 12.7
Linear Technology 21.9 3.3% 11.5
ConocoPhillips (NYSE: COP  ) 21.7 4.1% 8.0
Molex (Nasdaq: MOLX  ) 21.5                        3.9%                         12.2                       
Aflac (NYSE: AFL  ) 20.8 3.6% 8.4
Greif** 20.1 3.7% 8.9

Source: Capital IQ (a Standard & Poor’s company) and Yahoo! Finance. *CAGR = compound annual growth rate. **Greif shares listed here are the A class shares.

There’s a lot to like with these companies for those in search of investment income.  They offer compelling returns in the form of their above-average dividend yields at present.  However, their value lies in their ability to consistently grow their payments at a high rate.  The power of compound interest is a truly beautiful thing, and these firms look like powerful compounding machines.  Warren Buffett, a hero around these parts, cites his transition to seeking companies with this same trait -- the ability to grow at consistently high rates over long time horizons -- as a key development in his career, and rightly so. 

The power of compounding
As a thought exercise, say you buy a stock for $10 that yields 3%.  You’ll get $0.30 in your first year of holding that stock.  You reinvest those dividends, which gives you $10.30 of capital (for simplicity’s sake).  In year two, good news strikes.  Your company raised its payout to you by, say, 20%, the threshold for the companies above.  Now your $10.30 holding pays you $0.37 this time around ($10.30 x [0.03% x 1.2]).  Now your total capital, assuming you reinvest those payments, comes out to $10.67, versus the $10.60 you’d have without any growth.  While that difference might seem small in year two, it makes a big difference in returns over time. 

The Foolish bottom line
Investing in dividend-paying companies carries many advantages.  Mixing the steady stream of income dividend-paying companies produce with the magic of compound interest can produce some really impressive results.  Regardless of present circumstances, if you devise a plan to buy cheap, high-yielding stocks, odds are you’ll come out ahead.  Investing for the long term altogether ignores the market in the short term.  It might be better for you to put away that crystal ball of yours and turn to the tried-and-true basics of investing.

Many of us here at The Motley Fool love dividends, and for good reason.  Our analysts recently compiled a report containing 13 more high-yielding stocks to buy today.  Best of all, it’s absolutely free.  Click here to access your free copy of it today.  Your portfolio will thank you later.

Andrew Tonner holds no financial position in any of the companies mentioned in this article.  The Motley Fool owns shares of Telekom Indonesia and Aflac. The Fool owns shares of and has bought calls on Intel. Motley Fool newsletter services have recommended buying shares of Telekom Indonesia, Hasbro, Mattel, Linear Technology, Aflac, Philippine Long Distance Telephone, and Intel. Motley Fool newsletter services have recommended creating a diagonal call position in Intel. 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.

Read/Post Comments (4) | Recommend This Article (45)

Comments from our Foolish Readers

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 September 24, 2011, at 8:48 PM, prginww wrote:

    The market has been crazy lately, up, down, all around the town. Yet in every article that you write, we are always being told what to buy now. Don't you guys ever suggest staying on the sidelines, or heaven forbid, selling?

  • Report this Comment On September 25, 2011, at 10:41 PM, prginww wrote:

    I recently bought a few shares of Darden for my daughter's account. We like to eat at Olive Garden and Longhorn Steakhouse, so it seemed like a good idea. I'd been following Darden for awhile and with the recent market ups and downs, noticed the following; recent high over $50, recent low around $43, DRI seems to pretty much reflect the market and fluctuates as much as $1-1.50 during a day. Good buying under $45. Their x-div date should be coming up in Oct. I think thier payout ratio is something around 45% so plenty of room to go up.

  • Report this Comment On September 26, 2011, at 9:18 AM, prginww wrote:

    I agree with tumbao2-the market is crazy and if I were a conspiracy leaning investor, would think something was going on with the DJIA moving 2+% one way or another every couple days. Baby boomers still have a lot of money and will prop up the market for a long time so I believe any downs will be offset by ups. But, to hedge, I only buy "dividend" stocks from companies with PE/s below 15 and THAT I DO BUSINESS WITH, which, at least makes me feel better should I have to hold them for a long time. Part of the reason these companies dividend yields look big is that there share price is DOWN!

  • Report this Comment On September 30, 2011, at 3:40 PM, prginww wrote:

    Forgive me, I've lost faith in these guys. Ever follow one of their "reports" videos? An hour of non-stop chatter with no way to pause the audio. And always a sales pitch. Seems to me just another bunch of opportunists playing on human greed.

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