The Best Dividend History In The DOW

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

A long history of dividend payments does give investors a certain amount of relief when looking for an investment - especially a long term investment.  Even though past dividend history is not totally representative of what will happen in the future, it will still give you a good idea. For example, the companies with the best dividend history are often the biggest players in the industry, and they offer a monopoly of a product, which will bring in recurring revenues. 

One of the biggest mistakes in making long term investments is the lack of historical data that is often used. In my opinion if an investor is planning on buying and holding a stock for ten years then they should look back at the company performance over the past ten years. This helps investors from falling into the trap of one time manipulated earnings or dividends.

So then, if considering an investment for income for the long term, then the long term dividend history of the company should be taken into account.

The Longest Consecutive Rises

There are only a few companies in the DOW 30 that are part of the elite club of not reducing dividends for longer than 50 years. However, there are even fewer companies that have a record of 50 years of consecutive dividend raises!

So here are the top three:

The Procter & Gamble Company (NYSE: PG),

The winner of the list is Procter and Gamble. The company has increased its dividend every year for 56 years! Indeed, P&G was recently named a top dividend stock by the dividend channel!

3M Co (NYSE: MMM),

3M is the next best contender, with a yearly dividend increase every year for 54 years! The average yearly dividend increase for the company had been roughly 7.5% since 1975 and 6% since 2000. Furthermore, the biggest one yearly increase by the company was in 1989 when the stock increased its dividend 22.6%!

The Coca-Cola Company (NYSE: KO),

Surprisingly, only just scraping in at the bottom, Coca-Cola has increased its dividend for 50 consecutive years. Although the company has actually paid a quarterly dividend since 1920, the dividend was not increased in 1962, so the clock was re-set. However, since 1996 the dividend has increased a whopping 400%.

Where to Look for Future Dividend Strength

Where should we look for future dividend strength? Well, based on the 3 stocks above I have concluded that each of the three stocks have 5 main attributes:

  1. Market leading position
  2. Strong stable returns on shareholder equity
  3. Strong profit margins
  4. Non-cycical product
  5. Global product strength
 
Based on these 5 attributes I believe the best candidates to consider for my prediction of dividend strength into the future are McDonalds (NYSE: MCD) and IBM (NYSE: IBM). But how do they both stack up when compared against the above criteria?
 
1. Market leading position
 
This is a test both McDonalds and IBM pass with flying colors. McDonalds is something of a monopoly, as there is no other business that provides the same service and has the same worldwide exposure. The same can be said for IBM to a certain extent, although IBM does have some competition in the computer hardware market. Furthermore, IBM has been around in its current form since 1920, so it has a strong history of fiscal prudence and market leading products and experience.
 
2. Strong stable returns on shareholder equity
 
IBM and McDonalds also pass this test. IBM has achieved an average return on shareholder equity of 65% over the past 5 years, a return greater than all of the current dividend champions. McDonalds, on the other hand, produced a shareholder equity return of around 34% over the same 5 year period; that's around half of IBM's, but still in line with the rest of the champions.
 
3. Strong profit margins
 
Although not as strong as the rest of the dividend champion stocks, both IBM and MCD do produce decent profit margins. MCD has produced a 5-yr average profit margin of 20%, while IBM trails behind with a 5-yr average of 14%. However, as I have already pointed out, IBM achieves a much better return on shareholder equity even though the profit margin is lower.
 
4. Non-cyclical product
 
Both McDonalds and IBM offer non-cyclical products, although they could be subject to mild cyclical effects on revenue.
 
5. Global strength
 
Once again, both IBM and McDonalds have global brand strength and distribution networks.
 
6. (Extra Criteria) Current history of dividend strength
 
Despite being nearly 100 years old, IBM has only been consistently raising its dividend for slightly more than ten years - but hold on! IBM has actually paid a dividend since 1962 (at least, that’s as far back as my data goes). The current dividend raising record is only ten years, because the company kept the payout the same in 1990 and 1991.
 
McDonalds, on the other hand, has a much richer dividend history. In fact McDonalds already has 36 years of consecutive dividend raises. The company paid its first dividend back in 1976 and has not cut or reduced it since.
 
My final conclusion: buy McDonalds and IBM for solid dividend strength and growth into the future.
 
 


RupertHargreav has no position in any stocks mentioned. The Motley Fool recommends 3M, Coca-Cola, McDonald's, and Procter & Gamble. The Motley Fool owns shares of International Business Machines. and McDonald's. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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