As with diamonds, there is a Dividend Aristocrat for pretty much every need. A Dividend Aristocrat is a member of the S&P 500 that has increased its dividends annually for 25 years or more. As a great deal of the returns from the stock market emanates from dividends (as much as 85% of the total), the income policy of a publicly traded company can be a major part of the overall reward.
A history of increasing dividends evinces two important features of that publicly traded company. Number one shows up on the balance sheet and the earnings statement. It reflects that the business model and financial management of the company can produce enough to run the company, grow operations and reward shareholders.
The other feature is that it demonstrates that management wants to share earnings with all the owners. Shareholders will receive a constant flow of cash, growing in amount annually if it is a Dividend Aristocrat. That attracts long-term investors, who are the best owners for a company.
Coca-Cola (KO)
All investors should want Coca-Cola (NYSE: KO) in their portfolio. When the Dow fell over 600 points on Friday August 2, Coca-Cola was up more than 1%. That is what a “flight to quality” is all about in the stock market!
The quality of Coca-Cola shows up in the financials. The return-on-equity is over 40%. Profits are poured at an almost 23% margin. You won’t find this in the financials although it contributes to many doing well, but Coca-Cola is the top food and beverage brand in the world.
Coca-Cola’s income structure is what it is all about for a Dividend Aristocrat, too. The beverage giant has raised its dividend 62 years straight. Its dividend yield is close to 3%, more than twice the S&P average of around 1.3%.
Exxon Mobil (XOM)
Everything about Exxon Mobil (NYSE: XOM) says “Big Oil.” First of all, it is the biggest oil and natural gas company in the United States. Generally, Big Oil companies have big dividends. Exxon Mobil does well here with one over 3%, more than twice the S&P Average.
Repping its Dividend Aristocrat status, Exxon Mobil has increased its dividend 42 consecutive years. The payout ratio is in the low 40s so there is plenty of cash to continue this policy of rewarding shareholders. Also, there is little debt on the balance sheet to divert cash away from increasing the dividends.
It was just reported that over half of electric vehicles from Tesla (NASDAQ: TSLA) are turned in for gas engine vehicles. Less than one-third are swapped for another electric vehicle. Exxon Mobil has the largest gas station chain in America. In other words, count on plenty of demand for gasoline from Exxon Mobil in the future to support dividend increases!
Verizon (VZ)
Verizon (NYSE:VZ) is the largest U.S. wireless carrier. That comes from its base consisting of 93 million postpaid, 21 million prepaid, and 29 million fixed line customers. The dividend yield is around 6.5%.
The balance sheet and earnings statement make that dividend and future increases viable. Yes, there its lots of debt. But the earnings are there to support it.
That is the obviously the belief of institutional investors such as mutual funds, pension groups and others. Verizon has a high level of institutional ownership from these entities. Few have shorted the stock, betting that it will fall. Those are bullish indicators from professional money managers that they expect Verizon to continue to reward shareholders, of which the dividend payments are a major part of the total return.
On the date of publication, Jonathan Yates did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.