The goal of many investors is to build a portfolio that distributes enough cash to live off of while still allowing their portfolio to grow. With bond yields so low, many Americans have turned to dividend stocks to generate that income. There comes with a risk with that, though.
Dividends are not as secure as bonds, and they can be cut in order to shore up the balance sheet in hard times. That's why its important to understand the financial situation of the companies you're invested in and make sure they will be able to pay a dividend for decades to come. We asked our Motley Fool contributors which dividend stocks they think are reliable and likely to pay growing dividends. Read on for their answers.
An ATM is a reliable source of cash -- but of course, that money is already yours, so a withdrawal reduces your account balance as it fills your pockets. Many dividend-paying stocks are much like ATMs in their dependability for payouts -- and, better still, they can boost the value of your investment account, rather than reducing it. A fine example is Procter & Gamble (NYSE:PG), which recently yielded 3.1%.
Just how reliable is Procter & Gamble's dividend? Consider that it has been paid every year since 1890 -- 125 years! The dividend has been increased for the past 58 consecutive years as well. So how likely is the consumer goods giant to pay and increase its dividend next year? Pretty likely, as no company wants to disrupt a streak like that.
Let's delve into its business to see why we should trust its dividend. For starters, it sports 23 brands that generate annual revenue of at least $1 billion apiece (for example, Tide, Crest, Iams, Bounty, and Pampers) and in some cases more than $10 billion. Another 14 brands generate between $500 million and $1 billion per year. Overall, P&G rakes in more than $80 billion annually and produces nearly $12 billion in free cash flow.
The company has struggled in recent years, but it has been restructuring itself, shedding some businesses and focusing on core operations. (It sold its Duracell batteries business to Warren Buffett's Berkshire Hathaway (NYSE:BRK-A) (NYSE:BRK-B), for example.) P&G offers investors many growth catalysts, such as share buybacks, rising demand from developing markets abroad, and product innovations that can spur sales (think, for example, of Tide pods and Secret deodorant that lasts 48 hours). Procter & Gamble is likely to keep rewarding shareholders for many years.
One type of stock that is the next best thing to an ATM is a real estate investment trust that owns commercial properties -- particularly one that pays monthly dividends.
One great example is Chambers Street Properties (NYSE:CSG), which specializes in office and industrial properties. The company owns 128 properties consisting of nearly 38 million square feet of rentable space, and more than 98% of the space is occupied. The portfolio is highly diversified, with no more than 13.5% of revenue coming from any one industry, and it's spread out geographically as well.
Because of the nature of commercial real estate, an investment in Chambers Street is relatively predictable and low-risk. Tenants sign long-term leases (usually 10 years or more), and most are on "triple net" leases, which means the tenants pay for variable costs including taxes, insurance, and maintenance. Further, more than 96% of Chambers Street's leases have annual rent increases built in. The company leases most of its properties to high-quality national corporations, and the top three tenants at present are Amazon.com (NASDAQ:AMZN), Barclays (NYSE:BCS), and Raytheon (NYSE:RTN).
Perhaps the best part is Chambers Street's 6.5% dividend yield. This kind of consistent, predictable monthly income is the closest thing to an ATM you can put in your portfolio.
Realty Income is a commercial REIT that owns well-located properties and focuses on businesses in non-discretionary industries -- that is, companies that sell goods and services you cannot function without, such as food, consumer staples, auto repair, etc. This business focus has enabled Realty Income to keep its occupancy rates above 96% over the course of its history, a remarkable feat that ensures confidence in the company's payout.
Realty Income is exclusively focused on paying a monthly dividend; in fact, the company trademarked the name "The Monthly Dividend Company." A monthly dividend enables you to reinvest your dividends more often, allowing your money to compound more quickly than it can with a quarterly or biannual dividend.
Realty Income has certainly lived up to its trademark. The company highlights on its homepage that it has paid 536 consecutive monthly dividends; that's just over 44-1/2 years. Realty Income has also increased its dividend in 70 consecutive quarters at a 5% compound annual growth rate.
Dan Dzombak has no position in any stocks mentioned. Matthew Frankel owns shares of Berkshire Hathaway and Realty Income. Selena Maranjian owns shares of Amazon.com, Berkshire Hathaway, and Procter & Gamble. The Motley Fool recommends Amazon.com, Berkshire Hathaway, and Procter & Gamble. The Motley Fool owns shares of Amazon.com and Berkshire Hathaway. 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.