Stocks that pay dividends offer the investor the potential for growth of their investment along with quarterly cash dividends. When choosing dividend stocks it is wise to consider the ability of the company in question to keep paying dividends over time and their ability to routinely increase the dividend yield on their stock. In that regard there are three categories that include dividend stocks that have paid for years and years. These are called dividend kings, dividend aristocrats, and dividend champions. Consider these stocks first for dividend investing over the long term.
Companies like Procter & Gamble, Coca Cola, 3M, and Johnson & Johnson are well known large cap companies that have been paying steadily increasing dividends for more than fifty years. This qualifies them as dividend kings. A dividend king does not need to be a large cap stock that is listed in the S&P 500. It “only” needs to have paid increasing dividends for more than half a century. Thus companies like Hormel Foods, Tennant, American Water, Genuine Parts, and Illinois Tool Works are included in the list of dividend king companies.
For an added sense of security some dividend stock investors prefer not only a track record of years of increasing dividends but also a large cap stock that dominates its sector. Dividend aristocrats fit this description by having paid increasing dividends for at least twenty-five years and being included in the S&P 500. Thus this list includes the big cap companies in the dividend king list but not the smaller consistently profitable companies that do not make the cut for the 500 largest companies in America. The bar is also somewhat lowered for this group by only asking that they have paid increasing dividends for twenty-five years or more. However, the shorter time span lets successful companies that have been in business and paying dividends for less than fifty years into the picture.
This category of dividend stock lets smaller companies that are not included in the S&P 500 back into the picture but it also keeps the time required to have steadily increased dividends at twenty-five years. Thus you can find non-large cap companies that did not exist fifty years ago but have become reliable and increasing dividend payers in this group. Companies that you will not see are Cisco which only started paying dividends in 2011 and Microsoft which started paying dividends in 2005.
Are There Good Dividend Stocks That Are Not Kings, Aristocrats, or Champions?
The value of going with a dividend king, aristocrat, or champion is that you are investing in a company that has a business plan which generates revenue year in and year out and has done so for a long time. Thus these companies are somewhat immune from the fate of tech companies that lead the world for five years and then shrink as new technology edges them out. These companies have solid customer bases, strong brand names, and generally have money in the bank, low debt, and the capacity to adapt as needed as times change. That having been said companies like Cisco and Microsoft are likely to get into the Aristocrat category in a few decades and the King category in a few decades after that so they should not be ignored when choosing dividend stocks for your portfolio.
Beware of Excessively High Dividends
When investing in the most secure and reliable dividend stocks you will not be getting the highest available dividends. This is generally because the highest dividends go with stocks that have fallen in price due to problems with the business. Nevertheless, the company has maintained their dividend in an attempt to keep their shareholders and avoid having the stock fall farther in price. The dividend kings, aristocrats, and champion do not have this problem and therefore pay reasonable dividends which you can expect to see increase steadily year after year for decades.
Choosing Dividend Stocks – SlideShare Version
Choosing Dividend Stocks – DOC