4 High-Flying Dividends with 35+ Consecutive-Year Increases

Chris is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

As I was in the gym lifting weights today, an older gentleman casually pulled me aside.  “Let’s say that you had some money coming due from a CD that was yielding 5%,” he told me, “what would you do with it?” 

Read: should I put money into stocks now?

I have answered this question many times – but today I thought through the question in the context of the market’s recent rally.  What would I do with some extra funds right now, with the S&P 500 hovering around 1460?  And moreover, how would I invest it passively? 

Surely uncertainty is high.  If President Obama is re-elected, will the markets sink?  If so, how much?  If Governor Romney wins, will they charge full steam ahead?  The markets are high, but P/E ratios in some industries, like oil and gas, are low.  Is that a good place to park money?  If ever there was a time of extreme uncertainty, surely it is now.

I suggested that “I” would be thinking through three different options right now, with the markets having run-up so high.

3 Alternatives

Pay off debt – Assume I had loans with 6% interest.  It would take a 7.05% yield, assuming a 15% tax, to equal 6%.  If I paid tax at 25%, 8% would be necessary to yield 6%.  Therefore, where else can I get a guaranteed yield of 6% besides paying off debt?

Municipal Bonds – Depending on the bond, municipals are largely tax-free.  Buying a fund is most convenient, but performance depends on a variety of factors.  However, buying a muni fund or scoping out strong local deals is a positive.  Barclays has a muni ETF that returned 5.1% through August, and Kiplinger’s publishes information on munis every month.

Dividend ETF – Just do not buy now!  The markets are too high for my taste.  Rather, I would pick a pre-defined level, for simplicity sake, and go all in.  For example, I would choose a level roughly 20% lower than present, and then buy.  The iShares Dow Jones Select Fund (NYSEMKT: DVY) holds a nice basket of stocks.  The ETF holds 102 stocks across a broad array of sectors (information here) and has a .4% expense ratio.  Not bad.  However, the ETF has lagged the broad market.

So this got me thinking.  Why not find a stable of companies with strong dividends and long histories of dividend hikes?  This small group could stick with the market while providing sturdy yields.  So I did.  Here are four of them.

4 High-Flying Dividends

Company Yield Payout Ratio Years of Consecutive Increases P/E Ratio 5-Yr Average Div. Growth Rate
Procter and Gamble (NYSE: PG) 3.30% 59.00% 58 18.6 10.51%
Coca-Cola (NYSE: KO) 2.60% 53.00% 49 20.2 8.51%
McDonald's (NYSE: MCD) 3.40% 53.00% 35 17.3 34.87%
Lockheed Martin (NYSE: LMT) 4.90% 47.00% 9 10.8 23.72%

Procter and Gamble is a great firm because it has strong brand recognition in its consumer markets.  It owns brands like Olay, Head and Shoulders, Crest, and Oral-B.  The marketing juggernaut has its owns product segments, and it continues to expand overseas.

Like P&G, Coca-Cola has a strong brand and is rapidly expanding overseas.  Aside from its staple Coke, the company owns Sprite, Vitamin Water, Gatorade, and Minute Maid.  Finally, 49 years of successive dividend boosts only fosters confidence.

McDonald’s is also growing.  At the end of 2011, it had 33,510 restaurants in 119 countries.  Of those, 27,075 were franchised and 6,435 were company operated.  With a record of steady dividend payouts and a 3.4% yield, McDonald’s still looks like a winner.

Unlike its peers, Lockheed Martin has only nine years of straight dividend hikes.  However, its 4.9% dividend is massive, and its 23.72% 5-year dividend growth rate is impressive.  The strong payouts of Lockheed Martin could raise the returns of a dividend portfolio.

To conclude, I ask you the same question: if you had a CD coming due that just yielded 5%, where would you put it now?  Does paying off debt make sense?  Should you put it in the safe, tax-free harbors of municipal securities?  Or do you foray into stocks?

I have made my decision.  But if you are stuck, maybe just take a break and go lift weights.  It seemed to do the trick.


ChrisMarasco has no positions in the stocks mentioned above. The Motley Fool owns shares of Lockheed Martin and McDonald's. Motley Fool newsletter services recommend McDonald's, The Coca-Cola Company, and The Procter & Gamble Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.

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