Whether you're looking for income today, or building your wealth for a future financial goal, dividend stocks can make for ideal investments. Taken a step further, dividend growth stocks, companies that have made it a stated goal to consistently and regularly increase their dividend payments, can deliver market-beating returns and dependable income.
The Dividend Achievers, a trademarked property owned by Nasdaq, is a collection of high-quality companies that have a track record of at least 10 straight years of dividend growth. The companies on this list have established themselves as leaders in their industry with strong competitive advantages that have resulted in years of cash flow growth. The best of the best will go on to join the Dividend Aristocrats, companies that have gotten both big enough to be included in the S&P 500 index, and also grown their dividends every year for at least 25 years.
Dividend Achievers list
With almost 300 stocks on the Dividend Achievers list, this article won't delve into every single company. Instead of a data dump, here are five top Nasdaq Dividend Achievers that all offer something compelling to different investors.
1. American Water Works
The largest publicly traded water company in the U.S., American Water is both a clean water utility and wastewater utility services provider. It's also been in business for a very long time, with a corporate history that extends back to the 1880s, and operations in 46 states.
American Water has also made for a pretty great investment. Since the beginning of 2010, investors have enjoyed almost 800% in total returns; the dividend has grown 162% over that time, driving a large portion of investors' gains.
2. Brookfield Infrastructure
Another business that's delivered great long-term returns by providing boring and easily overlooked services, Brookfield Infrastructure owns and operates telecommunications, utility, energy, water, and transportation infrastructure assets around the world. Investors have also done very well with this wonderful business, which has steadily grown on the need for more and more worldwide infrastructure.
Since the start of 2010, Brookfield Infrastructure's share price is up 344%. But its generous dividend and steady, regular payout growth has delivered 661% in total returns.
3. Costco Wholesale
Another long-term market beater, Costco has become the go-to retailer for both businesses and families looking to stock up on large quantities of goods at bargain prices. The company's secret? Actually deliver on its low price promise; the company sells products as cheaply as possible, while counting on membership fees for most of its profits. It's a deal customers love: Costco regularly reports renewal rates near or even above 90%.
And the business model has paid off for shareholders; Costco investors have enjoyed 760% in total returns since 2010, with dividend growth doing a lot of the heavy lifting. As an added bonus, the company pays out a special dividend every so often, when it has a banner financial period or ends up with a much larger amount of cash on the books than it really needs. It paid out by far its biggest-ever special dividend in late 2020, rewarding investors with a whopping $10 per share extra payout on top of its regular $0.70 per share (and growing) quarterly base dividend.
4. JM Smucker
Investors looking for stability and reliability across any market environment, and prioritizing a safe dividend above the highest returns, might want to give Smucker a long, hard look. The company, best known for its food brands like Folgers coffee, Jif peanut butter, and of course, Smucker's jams and jellies, has rewarded investors with annual dividend growth every year since 2002, raising the payout 432% over that period, and almost 160% since 2010.
It hasn't delivered nearly the returns as the three prior companies; total returns are 152% since 2010. But for investors who prioritize a higher floor over a higher ceiling, Smucker's 3% dividend yield and strong cash flows might be ideal. Smucker's cash payout ratio -- the percentage of cash flows it uses to pay the dividend -- has been below 50% every year since 2015.
Some of the best dividend growth stocks are easy to miss when their yield is low. Mastercard is an excellent example: In its entire history as a public company, the dividend yield has never been as high as 1%.
But the low yield isn't because management has been stingy: Since 2012, when the company made regular dividend increases a priority, Mastercard's dividend has been increased an incredible 2,570%, helping juice investor returns to the tune of 850% in about eight years. If we go back to the beginning of 2010, when Mastercard was paying a dividend but not aggressively growing it, shareholders have enjoyed a simply incredible 2,570% in total returns.
A growing global middle class and the fact that the vast majority of the world's consumer spending is still cash-based paint a wonderful picture for Mastercard's next decade, too. With a minuscule payout ratio of 23%, the dividend is secure, and there's a lot of room to grow the payout much, much higher.
Dividend Achievers' dividend yield
Here is the dividend yield of the five Dividend Achievers described above. This compares to a dividend yield of 1.8% for the S&P 500 at the end of the same period.
American Water Works (NYSE:AWK)
Brookfield Infrastructure Partners (NYSE:BIP)
|Costco Wholesale (NASDAQ:COST)||0.7%**|
JM Smucker (NYSE:SJM)
Mastercard Inc (NYSE:MA)
High-yield Dividend Achievers list
Most Dividend Achievers stocks don't pay very high dividend yields, with the index averaging around or even below 2% yield in recent years. Investors looking for more yield might be better served with one of the NASDAQ US Dividend Achievers 50 Index stocks. This index is composed of 50 Dividend Achievers stocks that offer high yields as well as consistent dividend growth.
Here are five of the top High-yield Dividend Achievers, and their dividend yields (note: Dividend yields as of Dec. 3, 2020):
3M Co: 3.4% yield
Industrial manufacturing giant 3M (NYSE:MMM) makes more than 60,000 products across a wide array of industries and applications. It's also increased its dividend payments every single year for 57 years, tied for the longest streak of any Dividend Aristocrat or Dividend Achiever.
Over the past five years, 3M has increased its dividend 32%, supported by 27% growth in its free cash flows. With one of the longest dividend growth streaks and a strong, profitable business, 3M is an attractive high-yield growth stock for anyone looking for a secure and above-average payout.
AT&T: 7.1% yield
Telecommunications and media giant AT&T(NYSE:T) hasn't exactly been a great investment over the past five years, with the stock down 13% from 2015 to late 2020. In short, the company made a number of expensive -- and arguably ill-advised -- acquisitions that added enormously to its debt while also weighing on its financial performance.
However, the company's dividend has helped offset the decline in its stock price. Over the same period, AT&T investors saw almost 22% in total returns due to the very high dividend yield and modest annual dividend increases, supported by the company's substantial and steady cash flows from its 90 million wireless customers.
Looking beyond 2020, there are some catalysts for better results, too. AT&T's media segment has been forced to delay the release of almost all of its biggest movie blockbusters due to the coronavirus pandemic's impact on the movie theater industry.
Chevron: 5.7% yield
The coronavirus pandemic has brutalized the oil and gas industry, but integrated oil and gas giant Chevron (NYSE:CVX) has managed to hold up relatively well considering the environment. Investors have also recognized the strength of its operations, which generated $14 billion in trailing 12-month operating cash flow and $2.9 billion in free cash through the third quarter of 2020.
Here's the catch: The company has maintained its dividend this year, but it has relied on its balance sheet to fund the $9.4 billion in dividends paid over the past year, not just operating cash. Free cash flow was less than $3 billion, meaning two-thirds of Chevron's dividend expenses over that period were funded in part by the $7 billion in extra debt the company added to its balance sheet in the first three quarters of 2020.
With $6.9 billion in cash and an investment-grade credit rating, Chevron has the ability to continue paying out more cash than it earns to support its dividend; moreover, management has slashed capital spending budgeted for 2021 and beyond. That will boost free cash temporarily, but isn't good for future cash flows.
IBM: 5.3% yield
International Business Machines (NYSE:IBM) has one of the most impressive dividend track records out there. The company has paid a dividend every year for a century, and earlier this year, raised the quarterly payout for the 25th year in a row, setting Big Blue up to be named a Dividend Aristocrat when S&P updates the list.
But in the meantime, IBM has a lot going on. The company recently announced it was splitting into two separate companies, breaking its legacy enterprise hardware operations off from its high-growth cloud services business. When that happens, one company will be a slower-growth, cash-cow business (likely with the strong dividend), while the other will be a more growth-focused company. Right now, investors can buy what will become two very good businesses for one great value.
Philip Morris International: 6% yield
An easy company for many people to hate, tobacco maker Philip Morris International (NYSE:PM) is also extremely profitable, pays a generous dividend, and has increased it every year since becoming a stand-alone company over a decade ago. But for many investors, the fact that it makes a product that's addictive and causes cancer is enough reason to keep it out of their portfolios.
As a result, it regularly trades for a bargain valuation compared to other stocks, making it very attractive for investors looking to capture a solid yield. In December 2020, shares regularly traded for less than 16 times trailing earnings, roughly half the price-to-earnings ratio of the average S&P 500 stock. That's insanely cheap for a business that converts nearly all of its operating cash into free cash flow and has operating margins routinely above 35%.
Invest in Dividend Achievers ETFs
The two funds take slightly different approaches. The Invesco ETF tracks the full Dividend Achievers list, and held 285 different stocks as of Nov. 30, 2020, while the Vanguard Dividend Appreciation ETF tracks the NASDAQ US Dividend Achievers Select Index, owning a more focused group of 212 Dividend Achievers as of Oct. 31, 2020. The Vanguard ETF is also a lower-cost investment, with an expense ratio -- the fees the fund manager takes each year -- of 0.06%, versus a 0.53% expense ratio for the Invesco ETF.
The Vanguard fund isn't just cheaper; it has also proved the superior investment historically. It has delivered higher total returns to investors over the past one, three, five, and 10 years.
The Invesco Dividend Achievers ETF does come out ahead in one regard: a higher dividend yield of 1.97%, versus 1.6% yield for the Vanguard ETF, as of Dec. 1, 2020. It has generally paid the higher dividend yield over the past five years.
If it's higher yield you're after, the Invesco High Yield Equity Dividend Achievers ETF (NASDAQ:PEY) might be more appropriate. This ETF holds the 50 highest-yielding stocks on the Dividend Achievers list, with a dividend yield well north of 4% as of Dec. 1, 2020. That's well above the historical yield it has delivered: