Dividend stocks have become an essential part of most American investors' portfolios as the only reliable source of substantial income available in a low-interest-rate environment. But combing through thousands of stocks that pay dividends, many investors struggle to decide which dividend payers to add to their portfolios. One smart way to identify the best dividend stocks is to look for those with track records of regularly raising their dividend payments each and every year. Once you do so, you'll find that many companies consistently boost their payouts at roughly the same time of year. Taking advantage of these predictable movements can give you a leg up on your investing peers.
With that in mind, let's look at three dividend stocks that have a history of giving their shareholders a nice January surprise.
The blue oval adds a little green
Automaker Ford Motor (NYSE:F) doesn't have the most attractive dividend history, having been forced to reduce its dividend by two-thirds between 2001 and 2002 and suspend it entirely in 2006 because of sluggish performance in the U.S. auto market. But after the devastating recession and financial crisis that sent Ford's Big Three automaker brethren to bankruptcy court, Ford has bounced back in a major way, and in January 2012, the company initiated a nickel-per-share dividend. Ford came back the following January with a dividend double, and early this year, Ford gave shareholders a further 25% boost.
With the stock yielding 3.3%, Ford doesn't need to give shareholders a raise in order to keep income investors satisfied. But the company has only paid out about a third of its earnings over the past year, giving it ample room to return more capital to its investors without putting a major dent in its balance sheet. Ford told investors about its latest dividend increase on Jan. 9, so another early-January announcement -- perhaps to raise the dividend 20% to $0.15 per share quarterly -- definitely isn't out of the question.
Winter: The most wonderful time of the year for this company
Many people dread the winter months, but for investors in Polaris Industries (NYSE:PII), winter has traditionally been the best time of year. For 19 years in a row, Polaris has raised its dividend, and last year's Jan. 30 announcement gave shareholders a 14% increase in their quarterly payout.
Polaris sets its dividend increases for a time when it can reflect on solid results from earlier in the year. Although Polaris gets some revenue from sales of snowmobiles, much more of its sales come from off-road and all-terrain vehicles as well as motorcycles, and the company has done a good job of diversifying its product mix to make it a year-round success story. With just a 1.3% yield, Polaris is conservative with its dividend, paying out just over 30% of its earnings. That leaves Polaris with plenty of running room to give investors a double-digit dividend hike in 2015.
Thinking long-term on oil
Oil prices have fallen almost by half in just a few short months, and that has crushed shares of oil stocks like Core Laboratories (NYSE:CLB), which specializes in helping oil and gas exploration and production companies make their wells more productive. With so much uncertainty in the oil market right now, many investors have fled the space, and Core Labs has suffered a drop of more than 40% since this spring.
However, as value-seeking investors start scouring the energy space for bargains, Core Labs has one point in its favor: a history of January dividend increases that culminated in a mammoth 56% payout hike earlier this year. Even with that increase, Core Labs yields just 1.6%, and even with the company's earnings expected to decline in 2015, the payout ratio based on next year's numbers still comes in at less than 37%. Investors shouldn't expect another 50%-plus payday from Core Labs, but as a play on an energy recovery, a dividend increase could help bolster long-term confidence in the industry.
There's no guarantee that these three dividend stocks will follow through with higher payouts, as even companies with the longest dividend histories occasionally break from tradition. But given the success these companies have had, there's no question that they have the ability to pay shareholders more in dividends if they so choose.
Dan Caplinger owns shares of Ford. The Motley Fool recommends Core Laboratories, Ford, and Polaris Industries. The Motley Fool owns shares of Core Laboratories, Ford, and Polaris Industries. 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 Motley Fool has a disclosure policy.