In helping you answer the vital question, "Will I outlive my money?" the financial planning industry shows you charts and graphs, tells you the optimal rate of withdrawal from your nest egg, tosses around terms like "your number," and shoves 89-page Monte Carlo simulations at you. While these methods possess merits, there's an easier way to increase your odds of achieving financial peace of mind.
An investor's worst enemy
According to the Centers for Disease Control and Prevention, the average male in 1950 was expected to live to age 65. In 2020, life expectancy is projected for nearly 78 years for males and 83 years for females. With increased longevity, our retirements now span for much longer than a few Golden Years.
As a result, inflation is an investor's worst enemy. In 1950, the average cost of a new car was $1,510. Today a new ride will cost you $30,000. One pound of hamburger meat costs roughly $4 today; it cost $0.30 in 1950.
An investor's best friend
But don't fret. Strong, stable, growing dividends are your best defense for combating inflation, allowing you to pay for groceries and health care at future prices. If you need more invitation to ponder dividend payers, consider this. From 1999 to 2010, stocks with a market cap above $1 billion returned negative 3.2%. Stocks with the same market cap that paid at least a 3% dividend returned a widely impressive 28%.
Let's take a look at dividend-paying companies that measure up to the following yardsticks:
- Strong yield: Companies shelling out dividend yields greater than 3%.
- Stable yield: Companies with dividend payout ratios less than 60%, signaling room for the company to increase its dividend in the future.
- Growing yield: Companies with dividend growth rates that outpace inflation (roughly 4% annually on average over the past century).
- Diversified company with strong, competitive position: Brand dominance or special niches give these companies the ability to raise prices and help them sustain long-term profitability.
Five companies that fit these criteria are listed below.
Dividend Payout Ratio
Dividend Growth Rate
|Royal Dutch Shell (NYSE: RDS-A )||4.7%||34%||6%|
|General Mills (NYSE: GIS )||3.4%||52%||11%|
|Kellogg (NYSE: K )||3.5%||50%||8%|
|PPL (NYSE: PPL )||5.0%||50%||5%|
|BHP Billiton (NYSE: BBL )||3.8%||21%||23%|
Source: Yahoo! Finance, Financial Times.
Investing in these five stocks equally a decade ago returned 12.2% on average annually, 9.2% from capital appreciation and 3% from dividends. By comparison, the S&P 500 returned 5.3% on average annually during this same period.
Royal Dutch Shell
The industry leader in liquefied natural gas, Royal Dutch Shell has LNG interests around the world with future focus mostly in Australia and Asia to meet growing Asian demand. New projects in Canada and Qatar should help grow production volume. Growth will also benefit from North American oil shale production. Royal Dutch Shell has considerably improved its free cash flow position in recent years.
Brand power is a major factor in determining long-term winners in the food industry, enabling price increases and volume growth. General Mills' broad product portfolio centers on health and convenience, with strong brand recognition and product innovation. Paying an uninterrupted dividend for 113 years, General Mills is well-positioned in many fast-growing, profitable food categories, such as yogurt, soup, and cereal with its Yoplait, Progresso, and Cheerios brands.
Kellogg has paid a dividend every year for the past 87 years. It's currently ramping up investments in its facilities, and while this has resulted in a slowdown in earnings growth, it'll increase the likelihood of sustainable, long-term growth. This slowdown has hurt stock sentiment and, in my opinion, creates an ample buying opportunity. And already the tides are turning: Kellogg beat on both top and bottom lines in last week's earnings release.
PPL is an energy and utility company that delivers electricity and natural gas to 10 million customers in Pennsylvania, Kentucky, Virginia, Tennessee, and the U.K. The company has reported double-digit revenue increases on average for the past three quarters and has increased its dividend payout each year since 1999.
The trend of urbanization unfolding in developing countries is fueling high demand for building blocks of modern society like iron ore and copper. BHP Billiton is one of the world's leading suppliers of these materials. Its multiple business segments produce more than a dozen commodities. This diversification lets the company navigate volatile commodity pricing better than its peers. BHP Billiton consistently maintains healthy financials and strong cash flow.
If these five dividend payers aren't enough for you to ponder, check out even more in our free report jam-packed with nine dividend stocks, including one medical equipment company that boasts not only a 98% customer satisfaction rating, but also doubled its dividend payout since 2006. This report won't be available forever, so get your free copy today.