A successful dividend growth investor must start young enough to allow time for dividend growth to occur. What happens when a person waits too late in life to start investing and they need immediate income? Many times the person will invest in high-yield, high-risk stocks and lose their savings. If income is needed immediately and you want to mitigate the risk (to a degree), there are some things that can be done, such as:
Start With a High-Quality List of Stocks
If you are looking for a higher-quality dividend growth stock, you have to go where they can be found. For me this is my Stock Ideas page. It consists of:
S&P 500 Dividend Aristocrats: This list is designed to measure the performance of S&P 500 index constituents that have followed a policy of consistently increasing dividends every year for at least 25 consecutive years. These stocks are the best of the best – the blue blood stocks.
Broad Dividend Achievers: This list is comprised of select U.S. companies with at least 10 consecutive years of increasing regular dividends. U.S. companies must be listed on the NYSE, AMEX or Nasdaq. U.S. companies must have a minimum average daily cash volume of US$500,000 per day for the November and December prior to each Annual Reconstitution Date.
U.S. Dividend Champions: includes companies that had paid higher dividends for at least 25 consecutive years. The list includes some smaller companies not found on the other lists. This list is maintained by The Drip Investing Resource Center and is available on their website in an Excel spreadsheet.
Look For Sustainability
High-yield isn't free. There is usually a reason one stock's yield is higher than another and it is normally tied to risk. With all things being equal, the income investor would always select the higher yield stock, but all things are not equal. It is our job to identify what is driving a stocks yield up and determine if we are willing to accept the additional risk. When making this decision some of the things I consider are free cash flow, debt level, business model, among others.
Higher-Yielding Stocks To Consider
Putting it all together, I have identified 11 stocks that yield at least 4% and have grown their dividends for at least 10 years. They are:
Old Republic International (ORI) engages mainly in the general (property and liability), title and mortgage guaranty and consumer credit indemnity run-off businesses.
- 4.5% Yield
- 13.28% Debt To Total Capital
- 31.58% FCF Payout
- 32 Years of Dividend Growth
Urstadt Biddle Properties (UBA) is a real estate investment trust that acquires, owns and manages commercial real estate properties primarily in the Northeastern U.S.
- 4.9% Yield
- 28.24% Debt To Total Capital
- 19.80% FCF Payout
- 20 Years of Dividend Growth
Omega Healthcare Investors Inc. (OHI) is a real estate investment trust (REIT) that invests in income-producing healthcare facilities, mainly long-term care facilities located in the U.S.
- 5.9% Yield
- 62.70% Debt To Total Capital
- 49.13% FCF Payout
- 11 Years of Dividend Growth
As noted earlier, yield comes with a cost. Each of the above stocks carries some level of additional risk higher than the average Aristocrat, Achiever or Champion. Ideally, we will start building our income portfolios years before we need the income, but if that is not possible, diversifying and focusing on higher quality stocks should help reduce our overall portfolio risk.
Full Disclosure: Long UBA, OHI in my High-Yield portfolio. See a list of all my dividend growth holdings here.
- 8 High-Yielding Dividend Aristocrats Not Afraid to Raise Their Dividends
- Three Keys For Successful Dividend Growth Investing
- 12 Dividend Stocks With A Quick Payback
- 9 High-Rated Dividend Stocks With Above Target Returns
- 9 High-Yielding Utilities With A Growing Dividends
- High Yield Dividend Stocks in Gurus' Portfolio
- Top dividend stocks of Warren Buffett
- Top dividend stocks of George Soros
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