Dividend stocks have finally been recognized as the superstars that they are. While in the past many investors focused on growth stocks for share price appreciation, the masses have come to see that a great dividend combined with good growth prospects can provide a safe, reliable way to grow your investment.
If you’ve read any of my articles, you know that I am a huge dividend fan. I’ve been writing about dividend-paying companies for about a year, I’ve designed a ratings system to help me select the best companies, and I’ve built my Perfect Dividend Portfolio (PDP), featuring ten stocks that I believe will perform better than other dividend portfolios.
I continue to analyze dozens of dividend stocks every week, still looking for those elusive companies that hold the potential for share price growth with excellent dividend yield. There are some companies out there, but they’re not easy to find.
I look for a combination of excellent dividend-raising history, high current yield, and superior potential for earnings growth. Earnings are important, and I take into account the projected five-year earnings growth rate as well as the current PE and the past twelve months’ share price increase.
In this article today I am examining several long-term dividend payers that have substantial past dividend growth rates (DGR), to determine if they offer the opportunity for strong growth of both share price and dividends in the future.
P&G is a Fund Manager’s Dream
The Procter & Gamble Company (NYSE:PG) is currently trading at $77 per share and yields 3.1%. The company has raised its dividend every year for 57 years, with the last increase occurring in April for 7%. The company has a 5-year DGR of 9%, and a payout ratio of 51%.
The Procter & Gamble Company (NYSE:PG)’s products aren’t nearly as sexy as those of Apple or Google, but the fact that most of their products are considered “staples” means that they sell in nearly every economic environment. P&G is popular with value investors like Warren Buffett ($4 billion, 4.8% of his portfolio) and Donald Yacktman ($2 billion, 10.5% of portfolio), and the company’s 1Q results beat analyst estimates for earnings per share, operating profit and cash flow.
Bill Ackman of Pershing Square Capital has taken a substantial position in The Procter & Gamble Company (NYSE:PG) over the past year; it represents approximately 22% of his portfolio, and he is calling for an intrinsic value of $125 per share by 2015, approximately a 60% increase versus the current share price. The Procter & Gamble Company (NYSE:PG) had been suffering EPS declines since the CEO, A.G. Lafley, retired in 2009, but he has recently come out of retirement and taken the reins of the company again, and the EPS decline has been reversed.
With a 5-year earnings growth forecast of nearly 9%, The Procter & Gamble Company (NYSE:PG) looks to be in good position to continue churning out a great dividend for years to come.