Dividend growth a good sign
Some familiar names raise payouts yearly
Cox News Service
August 7, 2005
ATLANTA — Five years ago, the technology stock bubble collapsed. Two years ago, a new law slashed the tax rates we pay for dividend income. Then there was Enron, Tyco and the prosecutions of corporate sinners in those and many other companies.
It's enough to make an investor wonder if there is any way at all to pick bulletproof stocks.
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A surprising number of companies — some of them comfortably familiar names — have increased the dividends they pay to shareholders every year for the last 10, or 25, or even longer.
Among Georgia companies on the list are Genuine Parts, which has raised its dividend for 48 years in a row; Coca-Cola, 42 years; Haverty Furniture, 34 years; and Synovus Financial, 28 years.
Those figures are listed in Mergent's Dividend Achievers, a quarterly publication that has been keeping score since 1979. In the most recent edition, 314 companies made the honor roll by increasing dividends for 10 years or more without any breaks.
The field is getting crowded these days, as more companies look for ways to attract the money of the rightfully timid.
"There is always a suspicion today that a company is cooking the books," said Mike Kavanagh, a certified financial planner in Sandy Springs. "It's really impossible for most ordinary people to sift through all the documents and find out if a company is doing well."
A dividend is a payment made by a company to its owners, the shareholders. Dividends usually are paid four times a year in cash.
Study after study has shown that dividends make up a substantial portion of the total returns realized by investors. It's not just that the price of the stock goes up, it's that the company pays you a reward while you wait.
The popularity of dividends varies with corporate practices, investor expectations and income tax laws.
A recent study from Standard & Poor's showed that dividends were 53 percent of total returns during the 1940s. No question: That steady stream of income was a major motivator for stockholders.
The low point was the 1990s, when all us expected our rewards from a stock market that would go up forever. In that decade, 14 percent of total return was dividends; the rest was from skyrocketing share prices.
Bear in mind, however, that total return is a hypothetical concept. If the price of shares goes down, so does the total return that you thought you had. Dividends, on the other hand, are cold cash.
Growing dividends are considered important because they suggest both stability and responsible management.
"Companies that pay rising dividends are obviously even healthier than those who pay flat dividends," said Don Cassidy, senior researcher at Lipper Inc., a major source of financial information. "A rising dividend means you have a fresh signal in the past 12 months from the board that things are still pretty good."
If you are shopping for stocks with long records of dividend growth, Mergent's is one resource. If you don't find it in bookstores, check amazon.com.
The senior members of the Mergent's list are American States Water Co., a California utility; Diebold Inc.; and Procter & Gamble. Each has raised its dividend for 51 years in a row.,/p>
In all, 314 companies have raised their dividends for at least 10 years, according to Mergent. Georgia firms on the list, other than the champs listed above, are Aflac, 22 years; SunTrust Banks, 19 years; Home Depot, 17 years; and Roper Industries, 12 years.
The alternative is mutual funds with a dividend growth orientation. The number of choices is growing, in part because companies are building new offerings around a 3-month-old index from Standard & Poor's, the Dividend Aristocrat index. It includes 57 S&P 500 companies that have raised dividends for at least 25 consecutive years.
One of the new ones is the Ave Maria Rising Dividend Fund, which is oriented to Catholic teachings as well as dividends. An S&P spokesman said one other mutual fund and two unit investment trusts also use the new index, and other products are in development.
They will join a number of established dividend growth funds from Fidelity, T. Rowe Price, Vanguard and others.
There are also exchange-traded funds, including iShares Dow Jones Select Dividend Index and PowerShares High Yield Dividend Achievers.
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