Investors can't get enough dividend stocks. With a flat market in 2011, dividend payments were even more important -- because without them, many investors wouldn't have seen any gains at all on their investments.
Unfortunately, you can never take it for granted that stocks you own are going to keep boosting their dividend payouts. But a select few companies have put together impressive track records of doing exactly that, year in, year out. Even better, many of those elite dividend stocks are pretty predictable about when they make their dividend increases for the year. That's the next best thing to a sure thing, and it's worth looking at stocks before the rest of the world hears about their next payout boost.
Make a list, check it twice
If you hang around The Motley Fool, you'll inevitably hear about a group of companies called the Dividend Aristocrats. These companies are all on a short list that Standard & Poor's puts together every year. A stock that's a member of the S&P 500 becomes eligible to be a Dividend Aristocrat once it pays increasing annual dividends to its shareholders for 25 straight years.
The reason why so many investors pay attention to the Dividend Aristocrats should be obvious: It's tough to get onto the list, and staying there can be a huge challenge. Over the course of a quarter-century, the economy typically cycles back and forth between expansion and recession many times, forcing companies to endure changing conditions repeatedly.
In order to be a Dividend Aristocrat, a company has to have the foresight and financial discipline not to overextend itself during the good times while retaining a healthy reserve that can support the dividend during lean years. Although some companies finance their dividends through debt, it's much more common to see the best dividend stocks have underlying business models that produce a lot of cash -- cash that is available every year without fail to return to shareholders. A track record of doing so gives investors confidence that a stock can get through downturns without worrying.
Bring on the money!
The same discipline that helps make a company a Dividend Aristocrat also helps us predict when to expect dividend increases. Many companies on the list make decisions to raise their payouts at the same time every year. Some wait until the bitter end, but quite a few don't keep shareholders in suspense: They get their payout hikes done early every year. Below, I'll talk about four of those companies.
On the other hand, paint maker Sherwin-Williams
Last, Stanley Black & Decker
When things go wrong
Unfortunately, even being an Aristocrat doesn't guarantee a dividend increase. Going into 2011, CenturyLink
But that's a pretty rare event. Most Aristocrats have every incentive to stay on the list. So if you want higher dividends, these stocks are worth keeping an eye on -- and could get a bump in interest if they deliver on their anticipated dividend increases.
Some dividend stocks are worth owning even without a long track record of annual increases. We've found 11 powerful stocks and named them in The Motley Fool's latest special free report on dividends. Don't wait -- get your free copy right now and start the year off right.
Fool contributor Dan Caplinger has never seen Jerry Maguire, but still quotes it constantly. You can follow him on Twitter here. He doesn't own shares of the companies mentioned in this article. Motley Fool newsletter services have recommended buying shares of 3M and Sherwin-Williams, as well as creating a diagonal call position in 3M. 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 Fool's disclosure policy shows you the money.