When searching for dividend stocks, there are a few things you want to consider. Of course you want a company that has an attractive dividend yield, and anything above 2% to 3% is generally considered to be pretty good. High yield isn't everything, though -- you also want to make sure the company has a history of steady earnings growth. Increasing profits provide a company with stability, which allows it to not only make consistent dividend payments, but also to raise those payments on a consistent basis.
These traits are ideal in dividend stocks, and they're why Arbor Realty Trust (ABR -0.27%), Cincinnati Financial (CINF -0.64%), and United Bankshares (UBSI 0.37%) are all great dividend stocks you can trust to pay you year after year.
Arbor Realty: A REIT with a high yield
Arbor Realty is a real estate investment trust (REIT) focused on the multifamily housing sector, with 81% of its total loan portfolio made up of these loans. The multifamily housing space has high barriers to entry, which gives Arbor Realty a competitive advantage and provides stability to its earnings.
Multifamily loans tend to be less cyclical than single-family housing, which can fluctuate depending on market conditions. In times of recession, individuals are less likely to take out mortgages for single-family units. However, housing is always in need, and those individuals would be more likely to look toward multifamily units to rent. That's why multifamily housing tends to weather recessionary conditions better than single-family housing.
Not only that, but multifamily loans are protected against prepayment. This means you don't see a big rush of refinancing in the space when rates are lowered. As a result, earnings don't see such large fluctuations as single-family real estate companies.
Arbor Realty has done a good job of growing its loan portfolio, which is up 29% on a compounded annual basis since 2015. This strong portfolio growth has resulted in net interest income growth of 15% compounded annually and 29% compounded gains in net income since 2015. Thanks to its stellar growth rate, Arbor Realty has increased its dividend payout for nearly a decade straight and pays investors a 7.1% yield to boot -- making it a high-yield dividend stock you can trust.
Cincinnati Financial: A Dividend King
Insurance companies are another good source of income stocks. That's because insurance is a relatively straightforward business -- companies underwrite policies, and if they manage risk properly they make an underwriting profit. With these excess profits, companies put the money to work in the financial market to generate some form of investment income. Insurance companies can be a cash cow and a great source of yield in your portfolio as well, which is why Warren Buffett has often called the insurance industry Berkshire Hathaway's "most important sector."
Cincinnati Financial is a property and casualty insurer that has increased its dividend payout for 61 years straight. This makes it a member of the exclusive Dividend Kings group of stocks. A Dividend King is a company that has increased its dividend payout for at least 50 years straight, and only 27 companies currently hold the title.
The insurer has managed to increase dividends for so many years thanks to its capital management and underwriting profitable policies. Last year, the company posted a combined ratio of 98.1%. Combined ratio is an important measure of profitability in the insurance industry; anything under 100% means you are earning an underwriting profit. In the past five years, Cincinnati Financial has achieved an average combined ratio of 96.1%.
As a result, it has seen its earned premiums grow at a compound annual growth rate of 6.2% -- above average for its industry. Continued growth in premiums coupled with underwriting profitable policies make Cincinnati Financial another trustworthy income stock that yields investors a solid 2.1%.
United Bankshares: The unheralded income stock
United Bankshares isn't a Dividend Aristocrat, but it's not for a lack of increasing its dividends. The regional bank has raised its dividend payout for 47 years straight. The only reason it's not included with the Dividends Aristocrats is because it's not an S&P 500 company -- making this regional bank an under-the-radar dividend stalwart.
Last year, it increased net income by 11.1% despite the pandemic. This was boosted by its mortgage banking activity, as well as its expansion into the Carolinas with its purchase of Carolina Financial.
In the first quarter this year, interest income was up 14%, compared to last year, to $206 million. The bank was boosted by a drastic reduction in provision for credit losses as well as income from mortgage banking activities. This helped net income increase 166% over last year to $107 million.
United Bankshares has done a stellar job of increasing net interest income and net income over the past decade as well, achieving compound annual growth rates of 10% and 14%, respectively. Not only that, but it pays out a solid 3.7% dividend yield, making it another solid dividend stock you can trust.