Whether you think the stock market's rally has come too far too fast or is just getting started, you want stocks you can count on through thick and thin.
Despite the huge run-up in stock prices lately, investors have no shortage of things making them nervous. Consumer confidence isn't picking up as quickly as bulls would hope, and even if the economy has bottomed out, it still has a lot of lost ground to recover before strong, stable economic growth returns to the picture.
When you're tempted to focus only on the here and now, it can pay to remember your long-term investing focus. The two years since the market last hit record highs seems like an incredibly long time. But compared to the successful histories of many companies that have thrived and made money for decades, two years is nothing.
Rely on dividends
When you're uncertain about whether your stocks can go the distance, one way you can secure your stock portfolio is to seek out companies with long histories of paying growing dividends.
As investors have seen since late 2007, stock prices rise and fall all the time, and there's not always any good reason for those movements. Stocks that look like they'll stay healthy forever may fall from grace in a matter of months. Things like toxic assets on financial company balance sheets have made investors uncertain about how much they can rely on book value and other company financials.
If there's one thing you can't fake, though, it's a dividend. A company needs to have cold, hard cash in order to make its dividend payments, and if it wants to raise those payments year after year, a company has to keep growing and making more money in order to finance them.
And perhaps the best indicator of a company's success is when it can raise dividends in a tough economy. Companies like PepsiCo
As you'll see below, dividend-paying companies also sport attractive overall returns. Several studies show that dividend payers have outperformed their non-dividend-paying counterparts over the long haul -- especially during down markets.
The longest payers
These seven stocks each have histories of paying and increasing their dividends each and every year for the past half-century or longer:
|
Stock |
Dividend Yield |
Consecutive Years Raising Dividends |
Average Annualized Return Since 1990 |
|---|---|---|---|
|
American States Water |
2.9% |
55 years |
11.7% |
|
Diebold |
3.4% |
55 years |
10.0% |
|
Procter & Gamble |
3.4% |
55 years |
11.5% |
|
Dover |
3.0% |
53 years |
9.4% |
|
Emerson Electric |
3.8% |
52 years |
12.3% |
|
Genuine Parts |
4.3% |
52 years |
10.6% |
|
3M |
2.9% |
50 years |
9.8% |
Source: Yahoo! Finance, DividendInvestor.com.
Now companies like P&G and 3M are household names, but American States Water isn't a company that most people are familiar with. Yet, as you can see, all of these companies have impressive current yields and long-term returns. To put it in perspective, the S&P 500 index is up about 7.7% annually over the same period, after accounting for dividends.
Yet none of these yields is so high that they seem unsustainable. That shows how these companies have learned over the years to make realistic decisions about how much cash they can afford to part with while keeping enough to help their businesses grow. And while there's always a chance that a dire event will cause even a long-time payer to cut its dividend -- as shareholders in Dow Chemical
Keep your money
As simple as it sounds, the key to successful investing is finding stocks that will make you money. But stable dividend stocks with long histories of boosting their payouts do even more than that: They also help reduce your stress level due to their quarterly payments. That's a big part of the appeal of dividend stocks -- and that's why they deserve a place in your portfolio.
Fool contributor Nick Kapur believes that cash is king, and he's found seven companies that are swimming in green. Click the link and find out what he thinks about them.
