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Dividends can make a big difference, but just how big?
Investors who focus on companies that have a history of consistent dividend increases can do much better than just simply investing in the S&P 500.
For starters, the S&P 500 is up 74% over the last five years. However, throw in the dividends for those stocks and the total return for the S&P 500 goes up to 93%. That’s a big difference even for a small portfolio.
However, digging deeper, we’ve found that focusing on companies that consistently pay investors more — such as Dividend Aristocrats, those companies that have increased their annual dividend for at least 25 consecutive years — are the true holy grail of investing.
These companies offer solid risk adjusted returns with lower volatility compared to investing in the S&P 500. That’s because companies that are constantly raising dividend payments tend to generate strong levels of cash flow regardless of the economic backdrop.
The PowerShares High Yield Equity Dividend Achievers Portfolio ETF (NYSE: PEY) invests in companies that have a sound track record of dividend increases. While the S&P 500 total return is 93% for the last five years, the PowerShares High Yield return is a ridiculous 122% over the same period — proving that consistency does pay off.
Here are dividend increases for the month of March:
March Dividend Increases: Coca-Cola (NYSE: KO)
Coca-Cola is paying out a hefty 3.5% dividend yield and has increased its dividend for 54 straight years. That is quite the dividend history. The big beverage company is now increasing its quarterly dividend another 6% this month to $0.37 a share. However, besides the dividend, there hasn’t been much to get excited about. Shares of Coca-Cola are flat over the last year as investors continue to shun sugar-laden beverages. Yet, it’s a defensive play that’s undergoing a big turnaround.
The beverage maker is selling off nearly 40 bottling facilities, hoping to focus more on innovation and marketing its beverages. In terms of taking the pressure off of its soft drink franchise, Coca-Cola has a history of innovating and scaling brands. It’s done well with non-carbonated brands like Smart Water, Vitamin Water, Powerade and Dasani, but it’s looking to the future with some new brands. These include its premium milk brand Fairlife, Zico coconut water and Honest tea. New brands should help grow the top line and a commitment to savings will boost margins — both helping Coca-Cola secure its dividend for many more years.
Coca-Cola shares trade ex-dividend March 13.
March Dividend Increases: Gilead Sciences (NASDAQ: GILD)
Offering a dividend yield right at 3%, Gilead Sciences is paying out just 25% of its earnings via dividends. This biotech is increasing its quarterly dividend by 11% this month to $0.52 a share. However, Gilead shares are down 19% in the last year and now trading as one of the cheapest drug companies around, at about seven times earnings.
The problem with Gilead is that investors are writing off its Hepatitis C business. Gilead has offered negative guidance for its Hepatitis C business, but that doesn’t mean it’s going away completely. And, it still has a solid franchise for HIV treatments; its antivirals account for 80% of the market share. In its Hepatitis C business, it still owns 90% of the market share despite the rise of competition over the last couple of years. With that, it’s still well-positioned to sustain cash flow to support its dividend.
Gilead shares trade ex-dividend March 14.
March Dividend Increases: Cincinnati Financial (NASDAQ: CINF)
Cincinnati Financial is one of the few companies in the market whose streak of of consecutive dividend increases surpasses 50 years. This insurance company is offering a 2.7% dividend yield. It’s increasing its quarterly dividend by 4% this month to $0.50 a share and has now raised its dividend for 56 straight years.
Cincinnati Financial is an underrated dividend for income seekers. It has a history of consistent profitability and has managed to outperform its property and casualty insurance peers in terms of risk. Its combined ratio, which is a measure of risk, has outperformed its peers in each of the last five years. Cincinnati Financial should have plenty of opportunity for more dividend increases going forward.
Its shares trade ex-dividend March 20.
March Dividend Increases: Dr Pepper Snapple (NYSE: DPS)
Dr Pepper is increasing its dividend by 9% in March to $0.58 a share. It has raised its dividend for seven consecutive years. With that, its dividend yield is now 2.4%, but it’s still paying out just 50% of its earnings via dividends.
Dr Pepper shares have been a laggard over the last year with the market casting the soft drink makers to the side. However, it is worth noting that Dr Pepper now trades at a discount to both Coca-Cola and PepsiCo (NYSE: PEP). And there are positives to Dr Pepper’s portfolio; for example it’s gaining soda market share.
The company is also growing presence in the water and non-carbonated beverage markets, with such brands as Schweppes, Venom, Body Armor, Fiji and Vita Coco. Meanwhile, Dr Pepper’s major purchase of Bai Brands has increased its presence in the sparkling bottled water and ready-to-drink tea markets.
Shares trade ex-dividend March 10.
March Dividend Increases: Dunkin’ Brands (NASDAQ: DNKN)
Dunkin’ Brands, which operates the two fast-food chains Dunkin’ Donuts and Baskin-Robbins, is paying a 2.4% dividend yield. Dunkin’ is increasing its quarterly dividend by 8% this month to $0.3225 a share. It has four-year streak of consecutive dividend increases.
Driving these dividend increases is Dunkin’s commitment to store growth. It opened over 700 stores last fiscal year. As well, Dunkin’ has shifted from being a donut company to a leader in the coffee business, posting record beverage sales in the most recent quarter as it rolls out new espresso and cold brew drinks. More store growth and continued beverage innovation should support its dividend.
Shares trade ex-dividend March 9.