KO Stock No. 8 on List of Top Dividend Growth Names
When I try to sell investors on the benefits of dividend growth investing, I like to point to The Coca-Cola Co (NYSE:KO) stock.
Say you had bought 100 shares of KO stock at the start of 1986 and never purchased another share. Today—thanks to stock splits—you would have 4,800 shares.
What’s more, your KO stock would be spinning out $6,720 in annual income, representing a yield on your investment of nearly 79%.
The Top Dividend Growth Stocks
As regular readers know, I love dividend growth investing. That’s because it puts more money in your pocket. And with pensions a thing of the past, dividend growth stocks can provide a stream of inflation-busting income through retirement.
Payout hikes also signal management’s confidence in the future. After all, no executive wants to hike their dividend only to disappoint shareholders later. That would damage a board’s credibly and trigger a stampede out of their stock.
But how do you know if a firm will boost its payout?
My method: look for stocks with long track records of growing dividends. If a company has increased its payout for decades, you’re probably looking at a wonderful business.
Of course, the past is no guarantee of future returns. But if a company has a history of dividend hikes, then management is clearly committed to shareholders.
Now KO stock is just one example. I’ve assembled a list of America’s top 10 dividend growth stocks, ranked by the number of consecutive annual distribution hikes. This is not a table of buy recommendations, but it is helpful place to begin further research.
| Stock |
Year of First Dividend Increase |
Yield |
| Dover Corp |
1956 |
2.5% |
| Altria Group Inc. |
1956 |
4.0% |
| Procter & Gamble Co |
1957 |
3.0% |
| Genuine Parts Company |
1957 |
2.8% |
| Emerson Electric Co. |
1957 |
3.7% |
|
3M Co |
1959 |
2.5% |
| Cincinnati Financial Corporation |
1961 |
2.5% |
| The Coca-Cola Co |
1963 |
3.3% |
| Johnson & Johnson |
1963 |
2.7% |
| Lowe’s Companies, Inc. |
1963 |
2.0% |
Source: Corporate Filings
Each firm on this list has been raising its payout for decades. What’s interesting is the table is stacked with banks, cigarettes, soft drinks, and other consumer staple companies. As KO stock shows, boring, stodgy industries are conducive to dividend growth.
The yields on these names won’t knock your socks off. Indeed, these blue-chip firms have never sported big payouts. But small dividend hikes compounded over time can do wonders for investors’ returns.
Take Johnson & Johnson (NYSE:JNJ), for example. In 1996, JNJ shares paid out just 1.7%. Certainly not enough to get your greed glands pumping. This looks even worse when you figure government bonds yielded six percent at the time.
That dividend trickle, though, has turned into a raging river of cash flow. Over the past 20 years, Johnson & Johnson boosted its payout nearly nine-fold. If you had bought and held onto those shares, your yield on cost would be 18.6% today.
Lowe’s Companies, Inc. (NYSE:LOW) has done even better. In 1996, shares yielded only 0.5%. But through that period, management has hiked the payout 14-fold. If you had held onto those shares over this time, the yield on your original investment would now be 33.4%!
The Bottom Line on Dividend Growth Investing
Let’s play this scenario out another 10 years. Say Lowe’s continues to raise its dividend by five percent annually, which is a cautious assumption. By 2026, our hypothetical investor would now be earning a yield of 55%.
Bottom line: don’t ignore a stock just because of its tiny dividend today. Good things take time. Thanks to the power of dividend growth, even a small yield now can become a monster payout.