A successful dividend growth investor must start young enough to allow time for dividend growth to occur. What happens when a person waits too late in life to start investing and they need immediate income? Many times the person will invest in high-yield, high-risk stocks and lose their savings. If income is needed immediately and you want to mitigate the risk (to a degree), there are some things that can be done, such as…
Start With a High-Quality List of Stocks
If you are looking for a higher-quality dividend growth stock, you have to go where they can be found. For me this is my Stock Ideas page. It consists of:
S&P 500 Dividend Aristocrats: is designed to measure the performance of S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. These stocks are the best of the best – the blue blood stocks.
Broad Dividend Achievers: is comprised of select US companies with at least ten consecutive years of increasing regular dividends. US companies must be listed on the NYSE, AMEX or NASDAQ. US Companies must have a minimum average daily cash volume of US$500,000 per day for the November and December prior to each Annual Reconstitution Date.
U.S. Dividend Champions: includes companies that had paid higher dividends for at least 25 consecutive years. The list includes some smaller companies not found on the other lists. This list is maintained by The Drip Investing Resource Center and is available on their website in an Excel spreadsheet.
Look For Sustainability
High-yield isn’t free. There is usually a reason one stock’s yield is higher than another and it is normally tied to risk. With all things being equal, the income investor would always select the higher yield stock, but all things are not equal. It is our job to identify what is driving a stocks yield up and determine if we are willing to accept the additional risk. When making this decision some of the things I consider are free cash flow, debt level, business model, among others.
Higher-Yielding Stocks To Consider
Putting it all together, I have identified 11 stocks that yield at least 5% and have grown their dividends for at least 5 years. They are:
Leggett & Platt, Inc. (LEG) makes a broad line of bedding and furniture components and other home, office and commercial furnishings, as well as diversified products for non-furnishings markets.
- 5.16% Yield
- 36.76% Debt To Total Capital
- 57.89% FCF Payout
- 38 Years of Dividend Growth
Urstadt Biddle Properties (UBA) is a real estate investment trust that acquires, owns and manages commercial real estate properties primarily in the northeastern United States.
- 5.17% Yield
- 30.87% Debt To Total Capital
- 58.27% FCF Payout
- 16 Years of Dividend Growth
Hudson City Bancorp Inc. (HCBK) operates over 100 branches in the New York metropolitan area. It caters to high median household income counties and focuses on jumbo mortgage loan funding, largely through time deposits.
- 5.26% Yield
- 72.57% Debt To Total Capital
- 52.23% FCF Payout
- 10 Years of Dividend Growth
Cincinnati Financial Corp. (CINF) markets primarily property and casualty coverage. It also conducts life insurance and asset management operations.
- 5.31% Yield
- 15.05% Debt To Total Capital
- 46.87% FCF Payout
- 50 Years of Dividend Growth
PP&L Corporation (PPL) is a holding company for PPL Utilities and a utility in the U.K.
- 5.53% Yield
- 37.55% Debt To Total Capital
- 99.92% FCF Payout
- 9 Years of Dividend Growth
National Retail Properties, Inc. (NNN) invests in high-quality, freestanding retail properties subject to long-term net leases with major retail tenants.
- 5.74% Yield
- 1.92% Debt To Total Capital
- 82.18% FCF Payout
- 19 Years of Dividend Growth
Verizon Communications Inc. (VZ) offers wireline, wireless and broadband services primarily in the northeastern United States. It acquired MCI Inc in 2006 and has since sold or spun off non-core assets. Alltel was acquired in early 2009.
- 5.94% Yield
- 38.59% Debt To Total Capital
- 31.49% FCF Payout
- 6 Years of Dividend Growth
AT&T Inc. (T) provides telephone and broadband service and holds full ownership of AT&T Mobility (formerly Cingular Wireless). AT&T Corp. was acquired in late 2005 and BellSouth in late 2006.
- 6.02% Yield
- 41.67% Debt To Total Capital
- 61.14% FCF Payout
- 27 Years of Dividend Growth
Suburban Propane Partners LP (SPH) markets propane gas and other refined fuels to residential, commercial, industrial, and agricultural customers.
- 6.08% Yield
- 43.49% Debt To Total Capital
- 88.83% FCF Payout
- 11 Years of Dividend Growth
Kinder Morgan Energy Partners LP (KMP) is one of the largest pipeline master limited partnerships (MLPs) in the U.S.
- 6.14% Yield
- 63.92% Debt To Total Capital
- 76.11% FCF Payout
- 14 Years of Dividend Growth
CenturyLink, Inc. (CTL) acquired larger telecom peer Embarq in a stock deal in July 2009. Combined, the company provides voice service to 6.7 million customers and Internet service to 2.4 million customers in rural towns as well as larger cities such as Las Vegas.
- 6.74% Yield
- 44.56% Debt To Total Capital
- 75.39% FCF Payout
- 37 Years of Dividend Growth
As note earlier, yield comes with a cost. Each of the above stocks carries some level of additional risk higher than the average Aristocrat, Achiever or Champion. Ideally, we will start building our income portfolios years before we need the income, but if that is not possible, diversifying and focusing on higher quality stocks should help reduce our overall portfolio risk.
Full Disclosure: Long LEG, NNN, CTL, T, CINF. See a list of all my income holdings here.
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