The Best Approach to Dividend Investing: Lockheed Martin Corporation (LMT), Lorillard Inc. (LO), Wal-Mart Stores, Inc. (WMT)

On the other hand, the biggest position in VIG is Wal-Mart Stores, Inc. (NYSE:WMT), which pays a comparatively modest dividend yield of 2.6%. This is well below the yields observed in many of the DVY holdings, but Wal-Mart Stores, Inc. (NYSE:WMT) has consecutively increased its dividends in each of the last 39 years. This gigantic discount retailer is not immune to competition or economic fluctuations, but it has enough scale and purchasing power to remain a price leader in many retail categories, and that´s a very strong competitive advantage generating growing cash flows over time.

In fact, when looking at the rest of the VIG portfolio we find many of the strongest and most recognizable global corporations in the world, names like The Coca-Cola Company (NYSE:KO), Exxon Mobil Corporation (NYSE:XOM), The Procter & Gamble Company (NYSE:PG) and International Business Machines Corp. (NYSE:IBM) to name a few. This shouldn´t come as a surprise, sustained dividend growth over long periods of time is a reflection of high quality fundamentals and strong competitive advantages.

Companies which have been able to raise their dividends year after year under different economic conditions have proven to investors that their strong enough to generate growing cash flows through good and bad times, and this financial resiliency is usually a great sign about the fundamental quality of these businesses.

Bottom line

High dividend yields can be very tempting, and many investors intuitively jump into these kinds of companies in their search for the best opportunities in the market. But there is much more to dividend investing that yields, and companies with a solid track record of dividend growth are usually some of the best businesses in the planet. From a total return point of view, dividend growth investing can be a better idea than simply shopping for the highest yields around.

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