The ‘holy grail’ of dividend growth investing is to find businesses that offer:
– Growth potential
– High dividend yields
– Consistent and safe operations
This article takes a look at 4 businesses that have:
– High dividend yields above 4%
– Above average total return potential
– Consistent operations backed by a long dividend history.
This combination is difficult to find in today’s low interest rate environment. Low interest rates increase the share prices of high dividend stocks, reducing their yields.
You can see the effect of rising interest rates on the S&P 500’s dividend yield.
The trade off between growth and dividends makes it difficult to find stocks with both a high payout ratio and solid growth prospects. The more a company pays out in dividends, the less it has to reinvest in growth.
Management must be very efficient with its capital allocation policies to have both a high dividend payout ratio and solid growth prospects. There is less room for error.
Finding businesses that consistently pay steady or rising dividends and have safe operations is difficult. Strong competitive advantages in the business world are rare. There are only around 180 stocks that have paid steady or increasing dividends for 25+ years.
Businesses with long dividend histories have proven the stability of their operations.
Consistent High Yield Stock #1: AT&T Inc. (NYSE:T)
AT&T stock currently offers investors a 5.2% dividend yield. This is more than double the S&P 500’s current 2.4% dividend yield.
AT&T has paid increasing dividends for 32 consecutive years. As a result AT&T is member of the exclusive Dividend Aristocrats Index. To be a Dividend Aristocrat a stock must pay increasing dividends for 25+ years. Click here to see all 50 Dividend Aristocrats.
The company’s dividend payment history is shown in the image below.