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Raises All Around: Dividend Increases for the Month of October (Part 1)
Greg Thomas of ThomasPartners recently told Barron's, "There is no trade-off between income and growth."
(Luckily, we can enjoy both with a single investment in dividend growth stocks.)
Lest you think he's simply blowing smoke to make headlines, think again. A whopping 75% of the $3 billion in assets that Mr. Thomas manages for his clients is invested in companies that consistently up their payouts.
And his long-term track record proves that it works.
Over the last 10 years, he's delivered a total return of 8.7% per year (after fees). That compares favorably with a return of 7.3% per year for the S&P 500 Index.
So don't just take it from me. Dividend growth stocks are where it's at!
That's why, once a month, we look back on recent dividend increases to see if the hikes justify making a spot in our portfolios for the companies.
Without further ado, let's get to it...
Growing Again At AEP
Everybody knows electric utilities represent a solid choice for steady income. After all, no matter how tight money gets, people tend to do everything it takes to keep the power on.
Such reliability has helped Columbus, Ohio-based American Electric Power (AEP) pay dividends every quarter for over 100 years.
Last Tuesday, the company hiked its quarterly payout by 2% to $0.50 per share. That marks the second increase this year, too. At current prices, the stock now yields an attractive 4.2%.
But don't rush out to scoop up shares just yet.
Although the latest increases are encouraging, a quick review of the company's payout history reveals a spotty track record of increases. In fact, last year, management stiffed investors by not raising the dividend at all.
Plus, the company's dividend payout ratio rests near the high end of our desired range at 76%. That means there's not exactly a ton of room for future increases.
If consistent dividend growth truly matters more than current yield - and it should - I'd pass on American and buy Honeywell International (HON) instead.
Here's why...
Stronger Dividend Growth Always Wins Out
Last Tuesday, Honeywell also hiked its quarterly dividend. Instead of a 2% raise like American, though, it handed out a 10% increase.
That's not all. It's boasts a longer history of payouts and a more generous track record of increases.
While American has paid a quarterly dividend since 1910, Honeywell has been paying one since 1887.
As far as dividend growth, Honeywell has hiked its dividend nine times in the last decade - by an average of 10.2% each time. In comparison, American has only increased its dividend six times - by an average of 4.8%.
Honeywell is in a much better position to keep dishing out the increases, too, as it sports a dividend payout ratio of only 40%.
Add it all up, and even though Honeywell's current yield of 2.1% is less, it holds the most long-term promise for growth and income.
Safe investing,
Louis Basenese
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