Picking the best dividend stocks in the Dow takes more than just finding a high yield. It also takes an ongoing commitment from a company to keep its payout growing over time. If you're planning to hold onto stocks for five years or more, dividend growth is a lot more important than current yield to your eventual results.
Dow investors can have the best of both worlds: dividend growth and promising yields. All you have to do is look to an elite group of companies known as the Dividend Aristocrats.
Qualifying as a Dividend Aristocrat is tough. To make the list, a company needs to have raised its dividend payout every single year for at least a quarter-century. Throughout the entire stock market, only a few dozen companies qualify for this prestigious list.
Companies like ExxonMobil, the world's largest oil and gas company, qualify for this distinction, but even after a more than 20% dividend boost in early 2012, Exxon's dividend yield is still relatively low compared to other Dow stocks. In addition, you want to take into account the durability of a company's business model. Wal-Mart [NYSE: WMT], for example, has proven its muster in retail, but even as it has started growing again after a prolonged slump, the company will still have to wrestle with the ramifications of on-line powerhouse Amazon.com on its core big-box retail business.
Fortunately, the Dow is loaded with companies with solid dividend payouts and highly sustainable business models built for the long haul. The three stocks below all have an X factor that makes them stand out from their illustrious Dow peers. Let's take a look.
Coca-Cola is in the pedestrian-sounding business of selling beverages. But the Atlanta giant has turned its red cursive logo into the most valuable brand in the world, with Interbrand once again reaffirming Coke's global dominance in putting a price tag of nearly $78 billion on the beverage-maker's brand.
When you've got that valuable of a brand, you have to use it as much as you can. Coke operates in more than 200 countries and grew global volumes by 5% in 2011, thanks in large part to big international sales that offset slowing demand in the U.S. market. When you add in some margin-enhancing price increases, you get a nice jump in net income, which rose 19% in 2011. Despite growing concerns about the impact of soft drinks on obesity rates, Coke continued to post reasonable net income growth in 2012 as well and has taken steps to improve the nutritional value of many of its products.
Coming in between 2.5% and 3%, Coke's dividend yield isn't the highest in the Dow by a long shot. But with 50 straight years of dividend increases and the company having split its stock as well during the third quarter of 2012, Coke has been great for shareholders for a while now -- and should continue to be for the foreseeable future.
3M may be best known for its sticky yellow paper, but the company goes well beyond Post-It Notes. The company offers 50,000 different products in diverse industries from health care and computer screens to commercial safety and security items.
An industrial-focused company like 3M inevitably endures plenty of ups and downs in its business cycle. But the company has a 54-year streak of increasing its dividends year in and year out, regardless of what's happening in the overall economy.
Moreover, the company is just getting started. With innovation remaining a key component of its success, 3M is moving forward with many initiatives. For instance, at the most recent Consumer Electronics Show, 3M unveiled an 84-inch multi-touch display prototype, seeking to make large-scale display walls as commonplace as chalkboards in school classrooms 30 years ago. And with strategic moves like its recently finalized purchase of ceramics-maker Ceradyne in an $860 million deal that will let it take advantage of the broader use of ceramics across several industries, 3M is positioning itself for both growth and dependable earnings for years to come.
It's comforting to see products in your home every day that come from a company whose stock you own. With P&G, it's almost a sure thing that you'll get that psychological boost. The company has more than 4.2 billion customers in 180 countries across the globe. About two dozen of its brands rack up at least $1 billion in annual sales.
But success hasn't cooled P&G's drive to dominate the world. The company has worked hard to boost its presence in emerging markets, with plans to enter 950 new market segments across various countries, product categories, and distribution channels in the next several years.
Recently, P&G has received substantial criticism, especially from activist Bill Ackman, over its slowing growth and some miscues in pricing and product innovation. Moreover, the company has faced a tough economic environment, with high commodity costs weighing on margins and overall slowness in the global economy hurting its sales.Yet regardless of his calls to replace CEO Robert McDonald, Ackman's willingness to take P&G on as a project should demonstrate how much potential the company has for the future. The outcome will likely be favorable for long-term investors in the stock no matter what shape it takes.
With an attractive dividend in the 3% to 3.5% range, P&G investors don't suffer from a lack of rewards. Moreover, the company has raised that payout for 56 consecutive years -- and with so many growth drivers, those increases should continue well into the future.
These three Dow stocks have just about everything you want to see from a high-quality dividend stock. But as illustrious as the Dow is, it's a mistake to focus solely on Dow stocks as good candidates for your portfolio. By expanding your horizons, you can find dividend stocks that could be even better than these blue-chip standouts.
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