Investors have enjoyed many years of cheering for dividend hikes. Now there is some belief that after a seven and a half year bull market run that many companies will have a hard time raising their dividends with as much vigor (or at all) in the years ahead. Roughly half of all total returns through time come from dividends, so investors who want a solid dividend strategy ahead are much more likely to prefer those companies that have a history of raising their dividends year after year — and that can keep raising dividends ahead.
24/7 Wall St. has gone through the stocks that fall into the Dividend Aristocrats category. These are the companies inside the S&P 500 Index with a history of raising their dividends for 25 years or more. We have already featured seven Dow stocks as dividend aristocrats, and now we have screened out 14 companies in the S&P 500 index that also fall in the 25-year dividend hike group and that likely can keep raising their dividends ahead.
Many investors are wondering if the bull market can continue into and after a presidential regime change into 2017 and beyond. That means that if they want dividend growth they are likely to look at companies that have more predictable earnings and solid payout ratios to make sure the dividends are protected. Stocks are also not cheap at all by historic standards.
In an effort to keep investors from just chasing dividends blindly, 24/7 Wall St. screened out the dividend aristocrats which seem more likely to have a hard time hiking those dividends year after year ahead. After all, some companies just cannot maintain their pace of hikes indefinitely.
Investors should keep in mind that not even one-third of the current 30 Dow stocks have a history of 25 consecutive years of dividend hikes. We have included direct commentary about each company’s dividend hike history in this review. In an effort to make sure that dividend growth was likely to continue, the consensus dividend estimates or the dividend growth rates from Thomson Reuters were used for the year or years ahead.
These are 14 companies in the S&P 500 Index that have at least a 25 year history of dividend hikes and that seem likely to keep increasing their dividends in the coming years. We have also included trading data and valuations for additional relative data.
> Yield: 4.6%
In December 2015, AT&T Inc. (NYSE: T) increased its dividend for the 32nd consecutive year. As a reminder, the Dow Jones Industrial Average no longer includes AT&T. Still, this would actually be the highest yielding Dow stock had it remained — and the DirecTV merger may have even given AT&T better dividend coverage. The consensus estimate from Thomson Reuters shows that earnings per share will grow by 5% or so per year, while dividend growth is expected to be closer to 2%, which should imply a growing dividend coverage and payout ratio in the years ahead.
Shares of AT&T closed most recently at $40.85, with a consensus analyst price target of $42.83 and a 52-week trading range of $32.17 to $43.89. The company has a market cap of $251 billion.
2. Abbott Labs
> Health Care
> Yield: 2.5%
As of 2016, Abbott Laboratories (NYSE: ABT) has paid a dividend every quarter since 1924. Did we need any more proof that health care, medical devices and medicine is lucrative through all periods? Abbott Labs also has increased the dividend payout for 44 consecutive years. Analysts see the dividend rising from $1.04 in 2016 to $1.14 and $1.24, respectively, for the next two years.
Shares of Abbot Labs closed at $42.29, with a consensus price target of $7.42 and a 52-week range of $36.00 to $46.38. The market cap is $62 billion.