Smart dividend investors know that trying to maximize yield can get you in trouble with dividend stocks. Instead, more modest but still attractive yields can produce much better stock picks, especially when you combine them with long track records of substantial dividend growth. Below, you'll find three stocks that have above-average yields and have extremely impressive histories of growing their dividend payouts year in and year out.
Procter & Gamble
Consumer goods giant Procter & Gamble (NYSE:PG) has a storied history of dominating the market for items that customers see as staples. From diapers to detergent and paper towels to toilet paper, P&G has served consumer needs since the mid-19th century. Recently, Procter & Gamble has responded to sluggish growth conditions by making what it calls its biggest transformation in its history. By concentrating on core brands like Pampers and Tide and getting rid of weaker brands that haven't generated sales growth, the consumer giant hopes that it can stoke its overall growth, and use efficiency initiatives to bolster profits further.
Procter & Gamble's current dividend yield is 3.3%, and the company just raised its quarterly dividend in April. This makes the 60th consecutive year that Procter & Gamble has made an increase to its dividend. The consumer products giant's 1% boost to its payout wasn't much to celebrate, but P&G has struggled from the strength of the U.S. dollar and its impact on its international business. A current payout ratio of nearly 85% leaves the company without as much room to raise dividends as it has had in the past. Under more typical conditions, investors can expect Procter & Gamble to deliver much healthier increases and further extend its dividend-increase streak for years to come.
The plunge in oil prices has hurt energy companies big and small, and as the giant in the industry, ExxonMobil (NYSE:XOM) has had to deal with the resulting fallout. Plunging revenue has put pressure on profits, and even though crude has rebounded substantially in 2016 from its lowest points of the year, current prices below $50 per barrel are still a far cry from the triple-digit prices ExxonMobil enjoyed just a few years ago. Yet ExxonMobil's relatively low levels of debt have left it in a much more financially secure position than most of its smaller peers. Exxon has also done a good job of avoiding the massive losses that investors have seen elsewhere in the industry.
ExxonMobil boasts a yield of 3.2%, and it has a 34-year streak of raising its dividend every year, most recently in May. The oil giant's 2016 dividend boost was less than 3%, showing the difficulties that the energy sector has had in producing growth lately. Yet the fact that ExxonMobil was able to increase its dividend at all speaks to its strength in the industry. Even though it is paying out nearly 95% of its earnings as dividends, ExxonMobil is in a healthier position to sustain its dividend than most of its peers in the oil and gas arena.
Tobacco giant Altria Group (NYSE:MO) is one of the most impressive dividend stocks of all time. Its returns over the past half-century have been stellar, with average gains of more than 20%. Having fought against adversity at every turn, including litigation, regulation, consumer advocacy, and pressure on institutional investors to divest their shareholdings, Altria has found ways to win. That success has shown up both in its share price and in its dividend history, and investors expect the positives to continue for Altria for the foreseeable future.
Altria has a 3.3% dividend yield currently, and its most recent dividend increase, in September 2015, boosted its payout by almost 9%. When you take into account the spinoffs and corporate reorganizations it has made, Altria has a track record spanning back 46 years of consistently raising dividend payments to shareholders. Investors should have every reason to believe that the tobacco giant can keep its streak alive in the months to come.
Simply focusing on yield can give dividend investors mixed results. If you look not just at yield but also at the capacity to grow payouts in the future, you'll often find much higher-quality stocks that deserve a spot in your portfolio.
Dan Caplinger has no position in any stocks mentioned. The Motley Fool owns shares of ExxonMobil. The Motley Fool recommends Procter and Gamble. 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.