Dividend Growth Stocks

Dear Mr. Berko: We have a $100,000 certificate of deposit, yielding 1.5 percent, coming due this month. Rather than roll it over into another CD, my wife and I decided to ask you to recommend 10 stocks (we will invest $10,000 in each stock) that pay dividends and have long records of increasing dividends each year. — LM, Rochester, Minn.
Dear LM: Buying dividend growth stocks with a 10-year record of increasing dividends (increasing by over 8 percent a year) is a great road map to earning above-average gains in the market. During the past 40 years, I’ve always recommended dividend growth stocks to readers seeking above-average principal growth in the long term. I can’t, with any dependable degree of certainty, predict how much Aqua America, Raytheon and Cardinal Health will increase their share values this year. And I can predict with only a modest degree of certainty how much PepsiCo, Lockheed Martin and Dominion Energy will report in earnings this year and next. However, I can predict with a dependable degree of certainty that General Dynamics, McKesson and NextEra Energy will grow their dividends, and I know by about how much.
Defense stocks Raytheon (RTN-$153), General Dynamics (GD-$189) and Lockheed Martin (LMT-$2.65) have increased their dividends by an average of 10 percent, 12.5 percent and 18 percent, respectively, during the past 10 years. They’re excellent choices for long-term capital gains, and each has tripled its market value since 2006. The only event that could hurt the performance of these issues would be the breaking out of peace all over. Perish the thought! Imagine how many Americans would lose their jobs if there were peace on earth. Unemployment would surge. The economy would enter a serious recession. And the gross domestic product would collapse. Defense spending accounts for 17 percent of our budget. Meanwhile, a total of $30,000 invested in RTN, GD and LMT, with dividends reinvested, could triple by 2027.
Becton, Dickinson and Co. (BDX-$181), Johnson & Johnson (JNJ-$119) and McKesson (MCK-$150) have increased their dividends by an average of 17 percent, 8 percent and 15 percent, respectively, each year since 2006. They are excellent choices for investors seeking dividend and principal growth. Of course, these are health care issues, and health care accounts for 26 percent of our budget. If good health should break out all over — perish the thought — imagine how many doctors would be unemployed and how many hospitals would close. Certainly, our GDP would collapse. BDX, JNJ and MCK have tripled their share prices since 2006, and a $10,000 investment in each, with dividends reinvested, could triple once again by 2027.
Dominion Energy (D-$74) and NextEra Energy (NEE-$127) are electric and gas utilities, and Aqua America (WTR-$30) is a water utility. Each has increased its dividend by an average of 8 percent annually during the past 10 years. Since 2006, WTR shares have gained 70 percent, and D’s shares have also gained about 70 percent, while NEE shares have almost tripled in value. These are conservative, low-volatility investments because they have guaranteed returns that are determined by the public utility commissions in their home states. An investment of $10,000 in each could perform just as well in the coming decade as it would have in the previous decade.
And finally, PepsiCo (PEP-$108), a worldwide food and beverage company that needs no introduction, has increased its dividend by 9 percent annually while doubling its share price during the past 10 years. And I’ve little doubt that PEP’s share growth and dividend growth for the coming 10 years can match what PEP did in the past 10 years. So I would think that a 10-year $10,000 investment in PEP, with dividends being reinvested, would be equally rewarding.
This portfolio, with a first-year payout of $2,439 and yielding 2.13 percent, should increase its income by a minimum of 8 percent annually. That’s better than any CD. Buy these 10 stocks and know there are three reasons dividend stocks outperform their counterparts: 1) Dividend stocks often have higher-quality earnings. You can’t fake cash. 2) Dividend yields and dividend growth can support a stock during bad markets. And 3) dividend stocks put pressure on management to be more selective about uses of shareholders’ capital.
Please address your financial questions to Malcolm Berko, P.O. Box 8303, Largo, FL 33775, or email him at [email protected]. To find out more about Malcolm Berko and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate website at www.creators.com.
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