Dividends are one of the main ways companies pay back investors, and it's one of the best ways to generate a solid return. Steady dividends display consistency in operations and are an incentive for management to make prudent decisions with excess cash.
What many investors don't realize is that dividends are often the largest portion of a stock's return, even more than stock price appreciation. In the chart below you can see that 3M's (MMM 1.72%) stock has gone up by 995% since the early 1970s, but the total return, including dividends, is more than double that because of a steady dividend that grows year after year.
So, what are the best dividends on the market, dividends you can count on for generations to come? Here are my top five steady dividend stocks.
If you're looking for a steady dividend, the first place to go is 3M, one of the most diverse companies in the world. 3M has paid a dividend for 386 consecutive quarters and increased its annual dividend for 55 straight years, an incredible run.
There's no reason to think that 3M's consistency will lead to anything but a growing dividend for many years to come. The company is in consumer markets, industrial goods, energy, and just about every business you can imagine. A 2.3% dividend yield isn't the best you can find on the market today, but with the company's history of steady dividends, it's a good one for the long term.
Procter & Gamble
Think about five products you couldn't live without. It's likely that Procter & Gamble's products (PG 0.97%) would be among your list of items, maybe more than once. P&G makes everything from toilet paper to heartburn medicine to feminine hygiene products to toothpaste, and that makes for one stable company for investors.
The company has now paid a dividend in 123 consecutive years, and for 57 straight years it has increased that dividend. Unless we suddenly lose the need to clean ourselves or our homes, I think P&G will pay a dividend for another century as well.
When soft drinks began to grow in popularity, it was Coca-Cola's (KO 0.76%) brand that dominated the industry. Today, its global reach and ability to adapt to new trends make it about as steady a company as can be. As consumers have transitioned from sugary drinks to water, juices, and energy drinks, the company has been there every step of the way.
For investors, the ability to adapt and the scale to dominate competition created a company that's very difficult to compete with. They've been rewarded with a 2.7% yield and 52 straight years of dividend increases, and I think another 50 years is on the horizon.
Toothpaste and toothbrushes may not be exciting business, but it's consistent and consumers tend to develop habits they rarely break. Once they find a toothpaste brand they like, it could be years before they try another one. That leads to another incredibly consistent business for Colgate-Palmolive (CL 0.99%), one that has paid back investors with a dividend since 1895.
For the past 50 years Colgate has increased its payment to investors, and the stock now yields 2.3%. Throughout the recession, Colgate didn't just make a token dividend increase to investors; it's nearly doubled its quarterly dividend since 2007. It takes one consistent business to pull off that kind of dividend bump in the worst of times.
No matter how many times McDonald's (MCD 1.12%) is in the headlines for its unhealthy food, the company always seems to come back to form. There's just something about the smell of McDonald's that brings in the customers.
Since the company started paying a dividend in 1976, it hasn't gone a year without an increase, and the stock now yields 3.1%. That's not as long a history as the companies above, but McDonald's will continue to adapt and grow in the fast-food business. Life isn't slowing down and the fast pace of eating won't either.