In periods of rising inflation and slowing economic growth, one constant investors can count on is the reliability of dividend stocks to help them make it through the toughest parts. That's because of income-generating companies' history of outperformance.
The asset managers at Hartford Funds looked at the performance of the S&P 500 index going all the way back to 1930, and found that dividends contributed 40% to the total return of the index over that 91-year period.
Moreover, the study found that from 1960 on, dividends represented an astounding 84% of the index's total return. Reinvesting dividends in the benchmark, coupled with the power of compounding, would have turned a $10,000 investment into more than $4.9 million compared to the $795,823 that grubstake would have become based just on the index's price alone.
The power of dividends was confirmed by JPMorgan Asset Management, which found that stocks that initiated and then raised their payouts over a 40-year period between 1972 and 2012 returned an average of 9.5% annually, versus just 1.6% for non-dividend-paying stocks.
So an investor looking to protect his or her portfolio now while also looking to generate great returns over time should look to stocks that not only pay a dividend, but also have a long, consistent record of raising the payout. It's why you might want to consider natural gas and water utility Northwest Natural (NWN -1.18%) as a stock to buy.
Utility player for all seasons
Utility stocks were once considered essential businesses to own because of their stability and record of generating reliable income; they became some of the original "widow-and-orphan" stocks. Although that's not necessarily the case today (though in many instances it still is), Northwest Natural still fits the bill.
As its name suggests, Northwest Natural focuses on providing natural gas utility services to the northwestern states of Oregon and Washington, though 88% of its customers reside in the former and 12% in southwest Washington.
While it has a mix of residential, commercial, and industrial customers, it's the industrial clients that provide the greatest volume of business (41%), while homeowners provide the largest margins (68%). In the area it serves it has no other competition, only in different forms of energy provided. And because natural gas is a pass-through cost to customers, it doesn't matter if they buy the gas from Northwest Natural or some other third party serving the region, so its profit margins are not affected by the source.
It also provides water and wastewater utility services in the Pacific Northwest and Texas, while also expanding into Arizona and Idaho through acquisitions. It also formed a renewables business to pursue non-regulated renewable natural gas activities, such as decarbonizing a variety of sectors using existing waste streams and renewable energy resources.
A record of reliability
Northwest Natural has been around in some form or other since 1859 and has a long history of paying a dividend to shareholders. In fact, it has an unbroken string of 66 consecutive years of raising the payout, giving it one of the longest records of dividend hikes of any stock on the market.
That record also makes it a Dividend King, and because it has a nearly guaranteed stream of revenue growth and profits every year, its dividend is very safe; it currently yields 3.7% annually. Now in its seventh decade of making a payout, Northwest Natural has proven itself through all kinds of markets.
You won't see the stock making dramatic leaps higher like it's some kind of growth tech stock, but for risk-averse investors seeking downside protection and a continuous stream of income for years, Northwest Natural should be at the top of your list.