Dividend Aristrocrats: Four Yield Favorites

A good source for finding stocks that consistently boost their dividends is S&P's High Yield Dividend Aristocrats Index. Four stocks in that index -- ExxonMobil (XOM), PepsiCo (PEP), Procter & Gamble (PG), and Walgreen (WBA) -- are also long-time residents of our Editor's Portfolio. It's estimated that approximately one-third of the S&P 500 Index's total return since 1926 is due to dividends. Thus, dividends matter, especially if that dividend stream rises over time. Just because a company has boosted its dividend 25 years or more doesn't necessarily make it a great investment. But such consistency should not be ignored by investors: Rising dividends help offset the effects of inflation. Most investments get roughed up during periods of sharply rising in?ation. Still, a rising dividend stream will help offset the loss of purchasing power as a result of higher in? ation. Rising dividends provide a positive "signaling" effect. Companies that boost their dividends regularly demonstrate a con? dence that their finances and future growth prospects will be able to fund the growing dividend. Rising dividends are tangible evidence of a company's earnings quality and ?nancial integrity. A company's net income can be manipulated in any number of ways. Rising dividends give investors extra confidence in the quality of a company's earnings and financial position, as dividends represent a true outlay of cash that cannot be fudged or manipulated. Exxon Mobil's dividend history has been stellar. The company has paid a dividend continuously for more than 100 years and has increased its dividend annually for 28 years. The stock has been especially strong in recent months and is trading around its 52-week price range. I think you'll see upward pressure on oil prices as a result of improving economies in developed countries, not to mention the unrest and uncertainties in the Middle East. Higher oil prices should help fuel profit gains and more dividend increases for this oil giant. PepsiCo's history of dividend payments is not as lengthy as Exxon's, but its record of dividend increases is even more impressive. PepsiCo has been paying a dividend for nearly 60 years and has boosted the dividend for 38 consecutive years. I don't expect this streak to stop in 2011. Admittedly, the stock has been a bit sluggish of late. Food companies (PepsiCo has exposure here with its Frito-Lay snack-food business) have been impacted by higher raw material costs. Still, I remain bullish on the stock's long-term potential, and the dividend yield of 3% pays you while you wait for strength in the stock price. Procter & Gamble's dividend record stacks up well against virtually any publicly-traded company. The company has paid a dividend since 1891 and has increased the dividend for 54 consecutive years. The stock's current yield of 3% is a roughly 50% premium to the yield on the S&P 500 Index. High-quality dividend payers like Procter & Gamble should get better play in the market this year, especially if stocks turn more volatile and investors' risk appetite lessens. I would feel comfortable buying the stock at current prices. Walgreen has paid a dividend for 78 years and has boosted the dividend in each of the last 35 years. The stock of this drugstore giant has perked up nicely and is trading at its highest level in more than three years. A couple of solid quarters should be enough juice to get these shares into the mid-$40s or higher. The stock, yielding 1.7%, offers good total-return potential.... Read more