At a time when investors expect interest rates to remain high as the Federal Reserve seeks to keep the lid on inflation, dividend stocks may not be dominating the attention of income-seeking investors. You can get yields of more than 5% on shorter-term U.S. Treasury securities or lock-in a bank CD with a yield of 5% for a year.
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But short-term interest rates will not remain high forever. And if your investment objective is to build a nest egg over the long term and eventually generate income with the portfolio, it is never too early to think about how you will make that transition. Rather than making a radical change to your portfolio when you need income, it might work out better to grow income over the long term with a portion of your portfolio.
Below is a screen of companies that have consistently raised their dividends, but have also done so at annual paces exceeding 10% over the past five years.
Here’s an example from the stock screen below. Share prices have been adjusted by FactSet for stock splits, if any.
The Target example is tidy, with long-term growth and increasing income, with the caveat that the dividends are taxable, unless they are within a tax-deferred retirement account.
Screening the S&P Dividend Aristocrats
It turns out that Target is one of 67 stocks in the S&P 500 Dividend Aristocrats Index XX:SP50DIV — these are companies in the S&P 500 SPX that have raised their dividends on common shares for at least 25 consecutive years. That is the only requirement — it makes no difference how high a stock’s current dividend yield might be. This index is equal-weighted, rebalanced quarterly and reconstituted annually in January. It is tracked by the ProShares S&P 500 Dividend Aristocrats ETF NOBL.
For a broader screen, we brought in two other groups of Dividend Aristocrats.
For more about these indexes, see S&P Dow Jones Indices’ methodology.
In case you are wondering which of the S&P High Yield Aristocrats had a dividend yield of 10.18% as of Tuesday, it was Leggett & Platt Inc. LEG. But FactSet’s data didn’t yet reflect the dividend cut the company announced on Tuesday. In its earnings press release, Leggett & Platt said it was cutting the dividend as part of its restructuring efforts.
All together, removing duplicates, our screen began with 152 Dividend Aristocrats included in at least one of the Dividend Aristocrat indexes.
The screen
Beginning with the 152 Dividend Aristocrats, our objective was to narrow the list to companies that had shown the highest compound annual growth rate for dividend payouts over the past five years. To avoid distortions that might spring from very low payouts at the start of that period, we pared the list to 139 companies whose dividend yields were at least 1.00% five years ago.
Here are the 24 remaining companies with five-year compound annual growth rates (CAGR) for annual dividends exceeding 10%. They are ranked by dividend CAGR.
|
Company |
Ticker |
Five-year dividend CAGR |
Dividend yield on shares purchased five years ago |
Dividend yield five years ago |
Current dividend yield |
Five-year price change |
Five-year total return |
|
Microchip Technology Inc. |
MCHP |
19.8% |
3.60% |
1.46% |
1.96% |
84% |
99% |
|
Williams-Sonoma Inc. |
WSM |
18.7% |
7.91% |
3.36% |
1.58% |
402% |
462% |
|
Lowe’s Cos. Inc. |
LOW |
18.0% |
3.89% |
1.70% |
1.93% |
102% |
121% |
|
Carlisle Cos. Inc. |
CSL |
16.3% |
2.40% |
1.13% |
0.88% |
175% |
192% |
|
Westlake Corp. |
WLK |
14.9% |
2.87% |
1.43% |
1.36% |
111% |
127% |
|
Best Buy Co. Inc. |
BBY |
13.5% |
5.05% |
2.69% |
5.11% |
-1% |
18% |
|
Aflac Inc. |
AFL |
13.1% |
3.97% |
2.14% |
2.39% |
66% |
88% |
|
Fastenal Company |
FAST |
12.6% |
4.42% |
2.44% |
2.30% |
93% |
120% |
|
Badger Meter Inc. |
BMI |
12.5% |
1.95% |
1.08% |
0.59% |
230% |
245% |
|
American Financial Group Inc. |
AFG |
12.2% |
2.74% |
1.55% |
2.22% |
23% |
105% |
|
Automatic Data Processing Inc. |
ADP |
12.1% |
3.41% |
1.92% |
2.32% |
47% |
64% |
|
Silgan Holdings Inc. |
SLGN |
11.6% |
2.54% |
1.47% |
1.63% |
56% |
68% |
|
Franklin Electric Co. Inc. |
FELE |
11.5% |
2.05% |
1.19% |
1.04% |
97% |
107% |
|
Target Corp. |
TGT |
11.4% |
5.68% |
3.31% |
2.73% |
108% |
133% |
|
Abbott Laboratories |
ABT |
11.4% |
2.77% |
1.61% |
2.08% |
33% |
45% |
|
Analog Devices Inc. |
ADI |
11.2% |
3.17% |
1.86% |
1.83% |
73% |
90% |
|
Bank OZK |
OZK |
11.1% |
4.78% |
2.82% |
3.49% |
37% |
63% |
|
L3Harris Technologies Inc. |
LHX |
11.1% |
2.75% |
1.63% |
2.17% |
27% |
40% |
|
Texas Instruments Inc. |
TXN |
11.0% |
4.41% |
2.61% |
2.95% |
50% |
72% |
|
Linde PLC |
LIN |
11.0% |
3.08% |
1.83% |
1.26% |
145% |
164% |
|
Nike Inc. Class B |
NKE |
11.0% |
1.69% |
1.00% |
1.60% |
5% |
11% |
|
NextEra Energy Inc. |
NEE |
10.5% |
4.24% |
2.57% |
3.08% |
38% |
55% |
|
T. Rowe Price Group |
TROW |
10.3% |
4.61% |
2.83% |
4.53% |
2% |
22% |
|
Brown & Brown Inc. |
BRO |
10.2% |
1.64% |
1.01% |
0.64% |
157% |
167% |
|
Source: FactSet |
|||||||
Passing a stock screen and showing a high rate of growth for dividends and (in most cases) good total returns will guarantee nothing. If you see any company of interest here, you should do your own research and think about the business strategy being discussed by its management team. Then form your own opinion about how likely the company is to remain competitive over the next decade.
An easy way to begin your research is to click on the tickers for more about each company.
Looking at the total returns for these 24 companies, keep in mind that the five-year return for the S&P 500 was 87% through Tuesday, while the five-year return for the S&P Composite 1500 was 84%. Among these 24 stocks, 14 have beaten the S&P 500’s five-year return. That rate of 58% looks pretty good when considering that only a third of the S&P 500 have had five-year returns exceeding that of the index.
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