4 Dow Stocks With 50 Consecutive Annual Dividend Raises

Source: Getty Images

Investors looking to grow long term wealth should devote at least some of their portfolio to companies that pay dividends. But how do you choose which ones to add to your portfolio? If you are looking for dividend paying stocks, the most reliable companies to add to your portfolio are those that don’t just pay dividends, but that raise them regularly. These companies have long track records of creating long-term value for shareholders.

In this article, I highlight four Dow components that have raised their dividends for at least 50 consecutive years. While this doesn’t necessarily mean that they will be good investments long-term, or even that they will continue to raise their dividends with regularity, these stocks are a good place to start if you are looking to add quality income generating businesses to your portfolio.

1. Coca-Cola

Coca-Cola (NYSE:KO) has raised its dividend for 50 consecutive years. It pays a 3 percent dividend, which is much larger than the S&P 500’s aggregate yield, which doesn’t even breach 2 percent. It is a favorite stock of Warren Buffett who likes to say that while he doesn’t know what the stock will do this year, he knows that it will be selling more Coke in 20 years than it is selling now.

Right now, the stock appears to be somewhat expensive trading at nearly 22 times earnings. This is in-line with the S&P 500, but in general stocks are pricey now. The stock appears to be especially expensive considering that it reported an 8 percent profit decline in the most recent quarter. Nevertheless, Buffett is probably right, and when we consider that Coca Cola’s profits will probably be much higher in 20 years than they are today, we can justify owning the stock. But given my current valuation concern, I want to wait for a better entry point.

Source: Thinkstock

2. Johnson & Johnson

Johnson & Johnson (NYSE:JNJ) is America’s largest healthcare company with a valuation of $285 billion. Like Coca-Cola, it has been raising its dividend 50 years running. Right now it pays a 2.75 percent yield. The company looks like it is unstoppable. After stagnating for a few years, it looks as if J&J is finally growing its earnings again. This means that it will have more money for dividend raises and share repurchases.

Right now, the stock trades at just under 20 times trailing earnings, which is relatively inexpensive considering that J&J is a defensive company to own, and given that it is growing its earnings. Going forward, analysts expect this growth to continue, and the stock trades at just 16 times next year’s earnings estimates. With this being the case, J&J seems like a buy right now.

The only trouble is the recent strong price performance. The stock has bucked the weak stock market and is up over 10 percent for the year. With that being the case, it might be wise to wait for a pullback. But given this company’s history of execution and shareholder friendly policies, this is a company to hold for the long haul.

Source: Thinkstock

3. 3M

Formerly the Minnesota Mining and Manufacturing Company, 3M (NYSE:MMM) has raised its dividend an incredible 55 years running. The shares yield 2.5 percent currently, and the company has room to continue to raise its payout.

While I generally don’t like conglomerates — as I prefer managements to specialize in a particular industry — 3M is one to keep an eye on. The company has slow, yet steady income growth. It also repurchases its own stock so this growth is compounded on a per-share basis. Year-over-year, earnings growth came in at 7 percent in the first-quarter, which is commendable considering the lack of earnings growth seen in several large cap stocks. This growth is expected to continue as well. The company trades at 20 times trailing earnings, but at just 16.5 times 2015’s earnings estimates. If the company can grow its earnings at this pace then it is inexpensive, although as an industrial company its earnings are vulnerable to the downside in a recession. But given this, 3M’s long-term strength makes it just the sort of company you want to buy in the midst of a recession.

Source: Thinkstock

4. The Procter & Gamble Company

Of all the Dow stocks, the one that has raised its dividend for the most consecutive years is Procter & Gamble (NYSE:PG), which edges 3M out by two years. This is one of the highest quality companies for long term investors to consider. It owns a portfolio of some of the world’s best known brands from Pampers to Swiffer to Gillette. It also pays a 3.1 percent dividend, and it has room to raise it.

Unfortunately, quality comes at a price. P&G shares trade at over 22 times earnings despite the fact that recently the company hasn’t been growing its earnings. While some of this lack of growth is due to the strong dollar and the fact that P&G gets most of its sales overseas, I still think that the stock is pricey at $82/share. This is definitely a stock worth buying on weakness, especially if this weakness is due to an economic slowdown — people don’t stop shaving or brushing their teeth in a recession.

Now that we’ve taken a look at companies that raise dividends regularly, let’s turn our attention back to those that are likely to join this group. Last week, we analyzed the following three Dow stocks that have paid four quarters worth of dividends at the same rate. The implication is that these companies are likely to announce dividend increases in the near future. Let’s review these names once more:

1. Caterpillar (NYSE:CAT)

Caterpillar

Caterpillar is a leading producer of construction and mining equipment. 2013 was a rough year for Caterpillar, with earnings falling from $5.7 billion in 2012 to $3.8 billion in 2013. Nevertheless, the company raised its dividend in 2013, and despite weakness, the company’s dividend payout ratio (the ratio of the size of the dividend payout to the company’s total income) is small enough so that we can expect a dividend increase announcement fairly soon.

Over the past four quarters, Caterpillar has paid 60 cents per share. Over the past five years, the company has raised its dividend every year, at 9.3 percent per year. Since 2013 was a weak year, I don’t expect the company to raise its dividend at this pace. I expect a 5 percent pay increase to 63 cents per quarter.

2. Chevron (NYSE:CVX)

chevron2 (640x422)

Chevron is one of the largest oil producing and refining companies in the world. While the company has seen its profits decline somewhat in the past year, this was after a substantial increase in prior years. I expect profits to remain elevated and increase, given that there is strength in the oil market.

In the past four quarters, the company has paid out $1 per quarter, and it has raised its dividend every year – twice in 2011 – in the past five years. During that time period, the dividend has increased at an annualized rate of 10.1 percent. Since last year was a weak year, I expect the dividend increase to be smaller than this. If it is 5 percent, the dividend should increase to $1.05 per share.

3. UnitedHealth Group (NYSE:UNH)

Source: Thinkstock

UnitedHealth Group is a new Dow member; it is also a new dividend payer. For this reason, it pays just a 1.5 percent dividend despite the fact that it trades at 13.5 times earnings. Given that UnitedHealth is a health insurer, we have to be wary of potential issues coming from the recently enacted Affordable Care Act legislation. In the first quarter of 2014, the company showed a reduction in its profits despite a rise in revenue, and so investors and management may be concerned that higher expenses are here to stay.

Nevertheless, the company is still going to raise its dividend. In the past four quarters, it has paid 28 cents per share, although this is up from 13 cents per share just four years ago. This means the company is raising its dividend at 29.1 percent. Given Obamacare-related concerns, I suspect that this rate will come down, but given that the company’s payout ratio is very low (the company earned $1.10 per share last quarter), we can still see a fairly large dividend increase. I expect about 15 percent , which would bring the dividend up to 32 cents per share.

Disclosure: Ben Kramer-Miller is long Chevron.

More From Wall St. Cheat Sheet: