If you're looking for dividend-paying stocks, you need to know the Dividend Achievers.
Created by Mergent and now overseen by Indxis, several indexes track companies that qualify as "Dividend Achievers" -- an elite group of roughly 300 businesses that have increased their dividends annually over the past decade, and that meet certain liquidity requirements.
These achievers are worth following because dividends can really pack a punch for your portfolio. According to an Ibbotson study, reinvested dividends made up 40% of total stock returns from 1926 to 2006.
Dividend aficionados like me now have an easy way to buy into the Dividend Achievers index, thanks to exchange-traded funds (ETFs) such as the PowerShares Dividend Achievers ETF (PFM), which recently sported a 2.2% trailing dividend yield.
But that's not exciting enough for me. To earn a spot on the list, a company must simply increase its dividend 10 years in a row. That's a decent enough accomplishment, since troubled companies often reduce or eliminate their dividends instead, but it's not all that impressive. After all, a company could have grudgingly increased its payout by a penny or two per year and still made the list.
Stronger measures
The folks at Indxis headquarters may have been thinking along the same lines, because they now offer several subsets of the big list.
The Dividend Achievers 50 Index, for example, tracks the 50 highest-yielding stocks on the list -- a more tantalizing option for me, with higher dividend rates. Healthy companies with high dividend yields tend to have drawn the market's scorn for some reason -- if the dividend stays constant, and the stock price falls, the dividend yield rises.
The Nasdaq Dividend Achievers index presents another intriguing option. This index filters the list to highlight those dividend stocks that trade on the Nasdaq exchange, which is known more for high-growth characteristics than for paying significant income.
Some examples of stocks in the Nasdaq Dividend Achievers index include:
|
Company |
% of Index |
Recent Dividend Yield |
|---|---|---|
|
ADP (NASDAQ:ADP) |
13.7% |
3.2% |
|
T. Rowe Price (NASDAQ:TROW) |
7.9% |
1.8% |
|
Northern Trust (NASDAQ:NTRS) |
7.5% |
2.1% |
|
Paychex (NASDAQ:PAYX) |
7.1% |
4.1% |
|
Linear Technology (NASDAQ:LLTC) |
3.8% |
3.2% |
|
Ross Stores (NASDAQ:ROST) |
3.5% |
1% |
|
Fastenal (NASDAQ:FAST) |
3.5% |
1.7% |
Source: Indxis, Yahoo! Finance.
Caveat emptor, investors
Before you snap up shares of ETFs that track these indexes, remember that they're not perfect. Their limits mean they'll invariably include some companies that might not be high on your list of candidates.
In addition, even with these screens, these stocks won't all go up. Dividends are just one aspect of an investment; if these companies run into other trouble, then you could lose money. Still, as long as you buy an ETF or build your own diversified portfolio, one bad performer won't torpedo your returns. (That's the beauty of diversification.)
Indexes are a good place to start, but a little research can help you strengthen your investments' focus. To maximize your dividend power, seek attractive companies with sizable, regularly growing dividends.
