Are These the Most Reliable Dividends in the Market?

When it comes to investing, slow and steady wins the race. With that in mind, here is a guide to the "steady" part...the most consistent and stable dividend growth stocks in the financial sector

Apr 3, 2014 at 7:00AM

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Source: Flickr / Guy Sie.

History tends to repeat itself when it comes to investing. Over the long term, companies that have a good history of raising dividends will likely continue to do so in the future. Solid dividend growth stocks are one of the most certain ways of building wealth over a long investing career, and they can be found in every sector of the market. In particular, the financial sector has great companies such as Diebold (NYSE:DBD), Cincinnati Financial (NASDAQ:CINF), and T. Rowe Price (NASDAQ:TROW) with fantastic histories of growth as well as excellent dividend raises that could produce excellent results in your portfolio.

Best in class
Plenty of stocks pay very high dividends, but to be called one of the "best" for long-term investing, a company must be consistent about increasing its payout over time. The website www.dividend.com maintains a list of companies which have raised their dividend each year for at least 10 years, which is a very good place to start. After all, for a stock to be on this list, it means that the company raised its dividend throughout the financial crisis and recession.

The rock stars of the financial sector
The companies in the financial sector with consistent dividend increases are especially impressive considering how hard the sector was hit by the crisis. Many companies either cut their dividends or stopped paying them entirely. However, there is a list of financial companies with a fantastic dividend history.

With that in mind, here are a few of my favorites. I like these companies in particular not just for the longevity of their dividend increases, but for the longevity of the businesses themselves. In other words, these companies operate in businesses that will always be needed. In addition, all three have proved that they have the ability to change with the times. So, not only have these companies increased their dividend for years, but they will continue to do so in the future. My favorites, in no particular order are:

1.)    Diebold – The longest-running stock on the list, Diebold has increased its dividend for 60 consecutive years. Diebold is in a stable business, providing ATMs and security products to the financial industry, so it is no wonder that the company wasn't affected by the recession too much. These types of products will always be needed, and Diebold has proven its adaptability throughout the years as technology has evolved.

2.)    Cincinnati Financial – This company underwrites and sells property-casualty insurance, and has raised its dividend for 53 straight years.  In addition to a growing income stream, Cincinnati Financial pays a pretty high annual dividend of 3.65%, about twice the sector average of 1.83%. Also, the company is only paying out just over half of its earnings, meaning there is plenty of room for future dividend growth and capital reinvestment.

3.)    T. Rowe Price – One of the most well-known mutual fund companies in the world, T. Rowe Price has increased its dividend for 27 years in a row. Not only has T. Rowe Price increased its dividend for so many years, but the payout has increased by an average of 16% per year for the past decade. The company has increased its income in nine out of the past 10 years, and continues to do so with new and innovative fund products.

Why dividends are so important
Let's say that you invested $2,000 in Diebold every year for the past 30 years. Not only would your $60,000 in total investments have more than tripled to almost $192,000, but through the magic of dividend growth you would have an income stream of more than $6,700 per year. All of a sudden Diebold's 2.9% dividend doesn't seem so bad when you consider how consistently and quickly your income increases over time.

The key to building wealth
As I mentioned earlier, the most certain way to build wealth over a lifetime of investing is to buy stocks that deliver consistent growth and income and to let your gains compound. Focus on the highest-quality dividend stocks and set the dividends to compound automatically with a dividend reinvestment plan (DRIP). If you do this, portfolio growth will take care of itself. Just a little bit of money put away out of every paycheck could turn into a pretty comfortable retirement down the road, so the sooner you get started the better off you'll be!

9 rock-solid dividend stocks you can buy today
One of the dirty secrets that few finance professionals will openly admit is the fact that dividend stocks as a group handily outperform their non-dividend paying brethren. The reasons for this are too numerous to list here, but you can rest assured that it's true. However, knowing this is only half the battle. The other half is identifying which dividend stocks in particular are the best. With this in mind, our top analysts put together a free list of nine high-yielding stocks that should be in every income investor's portfolio. To learn the identity of these stocks instantly and for free, all you have to do is click here now.

Matthew Frankel has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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