35 Top Dividend Growth Stocks

by Dan Mac

Copyright © 2013 by Dan Mac

All rights reserved.

This book, or parts thereof, may not be reproduced in any form without permission from the publisher; exceptions are made for brief excerpts used in published reviews.

This publication is designed to provide accurate and authoritative information with regard to the subject matter covered.  It is sold with the understanding that the publisher is not engaged in rendering legal, accounting or other professional advice.  If legal advice or other expert assistance is required, the services of a competent professional person should be sought.

-From a Declaration of Principles jointly adopted by a Committee of the American Bar Association and a Committee of Publishers and Associations

TABLE OF CONTENTS

INTRODUCTION

The Strategy of Dividend Growth Stock Investing

Why Invest in Dividend Growth Companies?

Goals of Dividend Growth Investors

My Dividend Growth Stock Criteria

The Stocks

Conclusion

INTRODUCTION

Have you ever come across an idea that you believed to be so wonderful, so absolutely correct in its logic and so incredibly world changing that you wanted to share it with as many people as possible?

For me this idea was investing in dividend growth stocks.  The strategy and reasons behind dividend growth investing makes perfect sense to me and I truly believe that those people that decide to learn about and implement a dividend growth strategy for their investments will be able to change their lives forever.

Within this book I will share with you the basic strategy of dividend growth investing.  You will learn what exactly dividend growth investing is, what makes a stock qualify as a dividend growth company and what the goals of dividend growth investors are.  In Part 2, I will introduce you to 35 companies that I am personally interested in including in my own dividend growth portfolio.

But first let me introduce myself.  My name is Dan Mac and I operate a website dedicated to the strategy of dividend growth investing.  Through my site I try to educate my readers about dividend growth investing by writing many different types of articles.  You’ll find articles that analyze specific dividend growth stocks, articles looking at past investing performance of certain stocks, general articles about the dividend growth strategy and more personal articles where I discuss my very own investing experiences.  If these things seem to be of interest to you then I suggest checking out my site at www.dividendgrowthstockinvesting.com.

If you’re reading this book then you probably have a high interest in investing and in particular investing in the stock market.  If these things are of interest to you, then I recommend you head over to my website and get signed up for my free monthly newsletter.  Each month I send out a newsletter which includes snapshots of dividend growth stocks, earnings and dividend news of the companies you’ll read about in this book along with any other information I think my readers might be interested in.  Do me a favor and go sign up for my free newsletter right now!  As a gift for signing up, I will provide you with my Free Dividend Growth Investing Guide.  I promise you won’t regret it.

Alright, enough of this introductory talk!  Let’s get to the good stuff!

Part 1

The Strategy of Dividend Growth Stock Investing

I believe that dividend growth investing is one of the best investing strategies available for use by those who want to be more involved with the investing process but don’t have the time to fully analyze, research and stay fully informed on the entire stock universe.  Most people have lives outside of investing.  We have families, careers, hobbies, vacations and sporting events to attend!  We can’t be spending every minute of our days trying to research and find the absolute best stocks to invest in for our future.

Well with dividend growth investing you don’t need to.  The dividend growth strategy involves investing in stocks of companies with a history of paying out annually increasing dividends year after year.  Different dividend growth investors have their different criteria about how many years of dividend growth is required to be included in their own portfolio.  Personally I look for companies that have increased their dividends annually for at least the past 5 years.  Unbelievably, there are some very well-known companies that you’ll see have paid out increasing dividends year after year for 50 plus years in a row!

While the requirement of dividend growth greatly reduces the amount of stocks available for investment, you may be surprised to find there are still a very large number of companies that meet this requirement.  That is why I wrote this book.  I have narrowed down the universe of dividend growth stocks to a list of what I believe to be 35 of the top dividend growth companies worthy of a spot in your individual portfolio.

So the strategy involves finding companies with a history of annually increasing dividend payments (35 of which I detail in this book) and investing in them.  Before investing in these stocks though you want to make sure you do the proper research.  Proper research involves looking at the company’s past financial performance, any current news involving the company and the current valuation being given by the company in the stock market.  I will detail my specific criteria for picking individual dividend growth stocks in a later section.

When putting together a portfolio of dividend growth stocks, I would recommend to practice proper diversification.  This simply means don’t put all your eggs in one basket.  For example, I am currently in the process of building my portfolio to be comprised of a total of at least 35 different companies.  It is important to be properly diversified so that if any one company shall falter or fail, it won’t have a dramatic impact on our overall portfolio or our income stream from dividends.

Why Invest in Dividend Growth Companies?

There are a few reasons that I believe dividend growth stocks make good investments.

Here are a few of the good reasons:

·         Dividend growth companies are usually great businesses with steady growth, solid balance sheets and business models standing the test of time.  You’ll see the companies I have highlighted are solid blue chip industry leading companies with well-known money making brand names.

·         Dividend growth companies pay out dividend income that usually outpaces inflation.  This is good for a few reasons.  For one, our dividend income will increase along with our income requirements.  Over time we need more money as our expenses rise due to inflation and dividend growth companies will pay us more money to help meet these needs.

·         Dividend income helps keep investors from making stupid mistakes.  Stocks are volatile.  Market prices increase sometimes and decrease sometimes.  Over the long term, good stocks will increase.  The dividend payments we receive will make investors think twice about selling a great company just because it is experiencing a little market price volatility in the short term.

·         Dividend policies provide feedback from a company’s management.  Usually management will be conservative and only raise dividends if they believe the new payment to be sustainable.  The last thing management wants to do is cut the dividend.  So a management that has decided to increase its dividend amount is telling me they feel confident about the future.  However, make sure you are not relying solely on this because there are examples in the past of management failing to be conservative and increasing dividend payments while the company is crumbling beneath them, but this is rare and uncommon.

·         You do not have to sell your asset to realize the income.  I buy stocks for the long term.  If it is reasonable, I want to own my stocks forever.  The dividend income provides me with cash money to pay my bills.  I don’t have to sell the stock in order to get cash to cover my expenses and I like that.

·         Dividends can be reinvested allowing me to buy more shares of these great companies.  This can create a great compounding effect where I am then earning dividend income on the shares that I purchased from previous dividends.  Compounding is the secret to becoming wealthy over the long term.

These are just a few reasons why investing in dividend growth stocks is a good idea.  I hope you can see the benefits of dividend growth stocks and appreciate them as much as I do for what they can do to your overall financial position.  Over time a solid dividend growth investing strategy implemented and followed through an investing lifetime can make you very wealthy indeed.

Goals of Dividend Growth Investors

There are many goals the investor can try to achieve using dividend growth stocks.  Building wealth, creating financial security, beating the market, early retirement and many more ideas come to mind when one thinks of what they want to achieve by investing.  While all of these things are possible, for many dividend growth investors the ultimate goal is to achieve financial independence.

Financial independence is when you have enough passive income that you no longer need to work for a living.  In dividend growth investing, this means that you receive enough dividend income from your stocks to cover all of your daily living expenses.  You no longer have to wake up each morning and head off to a job.  You can instead decide you want to play golf, travel, go fishing, attend sporting events or sit at home watching television.  You can feel free to do whatever you want while at the same time knowing that dividend checks are being paid to you by the companies you own.  The ultimate goal is for these dividend checks to be large enough that they cover every possible expense you may have in the future.  Once you’ve reached this point you have reached what is known as financial independence.

As an owner of dividend growth stocks, you can eventually reach a point where your portfolio is large enough that the dividend income you receive covers all of your needs.  You won’t need to sell off any of your stocks to realize this income.  In fact, once you have reached this point you can continue to own all of your stocks, collect your income and feel reasonably confident that your dividend income will grow year after year as the companies you own increase their dividend payments to you.  You won’t need to worry about inflation.  You won’t need to worry about running out of money as long as you aren’t selling off your stocks.  You won’t need to go to a job anymore.  You can feel free to do whatever you want whenever you want.  This is the goal of a dividend growth investor.

Part 2

My Dividend Growth Stock Criteria

When selecting the dividend growth companies I want to invest in there are a few rules I like to follow.  I like to make sure my stocks meet certain criteria before I invest.  I then like to hold my stocks for the long term (forever if reasonable).  I first check for these main criteria before doing a more thorough analysis of digging into the company’s financials and recent news.

My main dividend growth stock criteria are as follows:

1.       Invest in companies I understand.  I only want to invest in companies that I have heard of, I understand how they make their money and who are leaders in their respective industry.

2.       Minimum of 5 years dividend increases.  I look for at least 5 years worth of dividend increases to be considered for my portfolio.  For me, the longer the dividend growth streak the better.  Companies like Coca Cola and Johnson and Johnson have increased their dividends for 50 plus years.

3.       Minimum current dividend yield of 2.5%.  I want to earn at least a 2.5% dividend yield from my stocks so that I can take that income and purchase more shares.  The higher the yield the better, however I also avoid stocks that may be paying too high of a yield (say over 6%) unless there is a valid reason.

4.       The 10 year average dividend growth must be higher than inflation.  I want to own companies that are increasing their dividend payments at a rate faster than inflation so that I know my income will always be able to cover my expenses once I reach financial independence.  I look for average dividend growth of at least 3% or higher.

5.       Earnings per share (EPS) trend over the last 10 years should be up.  I like to see a fairly consistent rise in the EPS over the last decade.  If EPS is trending downwards or is erratic from year to year then I am not interested in the company for a long term investment.

6.       Price to earnings ratio (P/E) under 25.  The price to earnings ratio is simply current market price divided by most recent EPS.  The market P/E ratio historically averages around 14.  I won’t purchase stock of companies trading at a P/E higher than 25 and prefer them to be under 20.  A lower P/E means a lower valuation and I prefer to pick up great companies at lower valuations.

These are the main criteria I look for in an investment.  I make sure to do a complete analysis before purchasing any stock.  I look at the 10 year growth of sales, net profits, EPS and dividends.  I like to check out the company’s dividend payout ratio, the return on equity numbers and the amount of long term debt being carried on the books.  Make sure before you buy any stock to do the proper research or else you may be left holding a bad investment.

The Stocks

In this next section you’ll find my list of 35 of the top dividend growth companies for your portfolio.  I will provide a brief overview of the company as well as some key metrics that investors should be interested in.  Remember these are just my opinions and you should do your own research before making a purchase of any investment.  Always pay special attention to valuation before making an investment as this will have a large impact into the overall results of your investment.

Aflac (AFL)

Company Description

Aflac is the world’s largest underwriter of supplemental cancer insurance.  Aflac also sells life, health, Medicare supplement, accident and long term disability policies.  They sell these policies in Japan and the United States.  Even though Aflac is located in the United States, this is more of a Japanese company as they generate roughly 75% of revenues and profits in Japan.  Aflac has raised its dividend payment to shareholders for 30 years in a row.

Key Metrics

10 YR Dividend Growth Rate

19.80%

10 YR EPS Growth Rate

15.36%

10 YR Average P/E Ratio

15.5

10 YR Average Return on Equity

17.25%

10 YR Average Dividend Payout Ratio

21.50%

Debt to Earnings Ratio

1.6

Investment Thesis

Aflac has experienced very good dividend and earnings growth over the past decade.  Before the financial crisis in 2008, the market typically valued Aflac at a P/E ratio in the high teens.  Since the crisis Aflac has been valued below 10.  This is due to the concern of Aflac’s investment portfolio having too much risk by being exposed to the European debt crisis.  Aflac management has worked to decrease their risk and the financials have shown good strength right on through the crisis.  I believe Aflac will return to favor within the next few years providing a nice return for investors.  Aflac has plenty of room to continue to grow their dividend payment into the future keeping dividend growth investors who own this stock happy.

Altria Group (MO)

Company Description

Altria is the parent company of Philip Morris USA.  Altria is a tobacco company operating in 5 segments.  The 5 segments are cigarettes, smokeless products, cigars, wine and financial services.  The cigarettes segment is by far the majority of the company’s business as it accounts for around 88% of operating profits in 2011.  Altria is the maker of the U.S. most popular cigarette brand Marlboro.  Along with the tobacco business, the Altria Group also has a 27% stake in SABMiller which is one of the world’s largest brewing and beverage companies.  Altria has rewarded shareholders by paying out annually increasing dividends for 44 years.

Key Metrics

4 YR Dividend Growth Rate

7.87%

4 YR EPS Growth Rate

7.42%

4 YR Average P/E Ratio

12.40

4 YR Average Return on Equity

84.57%

4 YR Average Dividend Payout Ratio

73.50%

Debt to Earnings Ratio

3.32

Investment Thesis

Altria makes and sells the United States most popular cigarette brand Marlboro.  There is always concern regarding tobacco companies due to fewer and fewer consumers smoking because of health awareness.  However, Altria offers a little bit of diversification by also owning a stake in SABMiller and through their smokeless tobacco products such as Skoal.  Dividend growth investors are rewarded twofold by Altria.  One the company pays out a generous dividend yield.  Second, Altria has a very good share buyback program in which they actively purchase and retire outstanding shares giving each remaining shareholder a larger interest in the company.  Altria spun off Kraft Foods in 2007 and Philip Morris International in 2008.  Figures are reported for the 4 years that have passed since the last spin off.

AT&T Inc. (T)

Company Description

AT&T is one of the world’s largest telecom holding companies.  They provide traditional land line telephone service as well as wireless service through AT&T wireless and broadband video television service.  The bulk of AT&T’s profits is derived from its wireless phone services.  AT&T has had an annual dividend increase each year for the past 29 years.

Key Metrics

10 YR Dividend Growth Rate

5.34%

10 YR EPS Growth Rate

0.76%

10 YR Average P/E Ratio

14.0

10 YR Average Return on Equity

13.04%

10 YR Average Dividend Payout Ratio

70.7%

Debt to Earnings Ratio

4.6

Investment Thesis

AT&T’s earnings growth appears to be fairly low over the past decade.  Despite a lower than preferred earnings growth, AT&T has still managed to grow dividend payments at a rate above inflation.  Their lower growth rates are partly offset by the initial current dividend yield a new investment would be earning.  At the time of this writing, AT&T has a current dividend yield above 5%.  While AT&T’s lower growth rates don’t make me the company’s biggest fan, I do believe AT&T can be valuable to a dividend growth stock portfolio due to the higher starting dividend yield and management’s historical commitment to paying out a growing dividend.  Adding AT&T to a well-diversified portfolio could prove beneficial over the long term.

Becton, Dickinson & Co. (BDX)

Company Description

Becton, Dickinson is a medical company that operates in three segments.  They manufacture a broad variety of medical devices accounting for around 50% of revenues, they provide products for safe collection and transport of diagnostic specimens accounting for around 30% of revenues and they produce research and clinical tools for the study of cells accounting for about 20% of revenues.  Becton, Dickinson has had an annual dividend increase each year for the past 41 years.

Key Metrics

10 YR Dividend Growth Rate

17.34%

10 YR EPS Growth Rate

11.61%

10 YR Average P/E Ratio

16.9

10 YR Average Return on Equity

23.10%

10 YR Average Dividend Payout Ratio

25.50%

Debt to Earnings Ratio

3.3

Investment Thesis

Looking back over the past 15 years of data, Becton Dickinson has increased EPS every year except 2.  That is a phenomenal record.  Growth over the past 10 years of both EPS and the dividend rate have been very good.  Becton, Dickinson has a long reputation of dividend growth that management will want to protect as they have increased the dividend rate annually for over four decades.  With the aging population, the baby boomer generation entering their elderly years, there will continue to be an increasing demand for medical products and services.  Becton, Dickinson would be a good company providing exposure to the medical industry for dividend growth investors.

Chevron Corp. (cvx)

Company Description

Chevron is the world’s fourth largest oil company.  Chevron explores for and produces oil and natural gases.  They are involved in the processing, transportation and selling of many oil related products.  They operate gas stations under the Chevron and Texaco brand names.  The oil and energy business has been a good one for Chevron shareholders as they have received 25 years of annual increasing dividend payments.

Key Metrics

10 YR Dividend Growth Rate

9.67%

10 YR EPS Growth Rate

15.00%

10 YR Average P/E Ratio

8.9

10 YR Average Return on Equity

20.37%

10 YR Average Dividend Payout Ratio

30.11%

Debt to Earnings Ratio

0.4

Investment Thesis

Oil is a profitable business to be in as the demand will continue to increase into the future with the rising population and emerging countries growing needs.  The big risk with investing in oil companies is the possibility of a man-made disaster such as the BP oil spill in the Gulf of Mexico.  If and when these disasters occur, the stock of oil companies will usually be hit pretty hard.  The financial strength of the company dealing with the disaster will be challenged but as we have witnessed with BP, companies will oftentimes turn out fine.  Investors in Chevron can feel confident that they are investing in a company with very strong financial strength.  As the demand for oil continues to increase, Chevron should remain a good long term investment for the dividend growth investor.

Clorox Co. (CLX)

Company Description

The Clorox Company is a consumer products company operating in four segments.  The cleaning segment produces and markets laundry, home care and professional cleaning products accounting for 36% of 2012 profits.  The lifestyle segment consists of food products and personal care products.  The lifestyle segment accounted for 25% of 2012 profits.  The household segment sells charcoal, cat litter, plastic bags and containers.  The household segment accounted for 28% of 2012 profits.  The last segment is international which accounted for 11% of 2012 income.  Brands such as Clorox, Green Works, Tilex, Kingsford charcoal, Glad trash bags, Fresh Step cat litter, K.C. Masterpiece barbeque sauce and Brita water filters have been very profitable for The Clorox Company.  Clorox has shared those profits with shareholders by paying out annually increasing dividends for the past 35 years in a row.

Key Metrics

10 YR Dividend Growth Rate

11.27%

10 YR EPS Growth Rate

11.59%

10 YR Average P/E Ratio

19.3

10 YR Average Return on Equity

0%

10 YR Average Dividend Payout Ratio

50.30%

Debt to Earnings Ratio

2.9

Investment Thesis

The Clorox Company owns many profitable brands that consumers rely on and purchase every week when they do their household shopping.  Clorox has done a good job growing earnings and dividends over the past decade.  Clorox has more liabilities than assets on their financials giving them a book value of zero and no return on equity.  Clorox does have a large amount of debt, however the company does a good job bringing in plenty of cash and earnings to have no problems servicing their debt load.  The biggest concern here is that the large debt amount could limit dividend growth potential in the future.  Even with the high debt, financial strength of Clorox is of little concern as they are rated a B++ by Value Line investment survey.  This consumer products company makes the kinds of products that will continue to be household staples long into the future.

The Coca-Cola Company (KO)

Company Description

The Coca-Cola Company is the world’s largest beverage company selling world famous brands such as Coke, Diet Coke, Sprint and Fanta.  The company markets over 500 brands worldwide through a network of company owned and independent bottlers and distributors.  This is truly a global company shown by having 60% of sales coming from outside the United States in 2011.  The beverage giant has increased their dividend income payment to shareholders annually for 51 years in a row.

Key Metrics

10 YR Dividend Growth Rate

8.40%

10 YR EPS Growth Rate

8.75%

10 YR Average P/E Ratio

20.3

10 YR Average Return on Equity

30.88%

10 YR Average Dividend Payout Ratio

50.2%

Debt to Earnings Ratio

1.5

Investment Thesis

Is there any way you could imagine that people will not be drinking beverages made by the Coca-Cola Company long into the future?  Coca-Cola has been around for 126 years.  They sell products in over 200 countries.  They have paid out a quarterly dividend ever since 1920 and have raised that dividend every year for the past 51 years.  This company is a great pillar stock for any investment portfolio and the long history of dividend growth makes it a perfect fit for dividend growth investors.

Colgate-Palmolive Company (CL)

Company Description

Colgate-Palmolive is the second largest US maker of toiletries and other household products.  They make their profits by selling brands such as Ajax, Palmolive, Colgate toothpaste, Irish Spring soap, Hill’s Science Diet pet foods and many others.  This is a global company having about 80% of 2011 sales coming internationally.  The consumer products industry is great for shareholders as people buy their products weekly at grocery and discount stores.  Colgate-Palmolive is another long time dividend growth company as they have increased their dividend payment to shareholders annually for the past 49 years.

Key Metrics

10 YR Dividend Growth Rate

11.69%

10 YR EPS Growth Rate

9.97%

10 YR Average P/E Ratio

10.1

10 YR Average Return on Equity

130.09%

10 YR Average Dividend Payout Ratio

40.8%

Debt to Earnings Ratio

1.8

Investment Thesis

There are quite a few consumer products companies offering long histories of dividend growth for investors and Colgate-Palmolive is no exception.  People all over the world are brushing their teeth with Colgate, washing their dishes with Palmolive, washing their hands with Softsoap and feeding their dogs Hill’s Science Diet dog food.  Consumers will continue to use these brands long into the future as there will also be a need for brushing teeth, cleaning dishes, washing hands and feeding good quality food to our pets.  Investors in Colgate-Palmolive can feel good knowing there is a long historical commitment by this company to paying out annually increasing dividends to shareholders.

ConocoPhillips (COP)

Company Description

ConocoPhillips is one of the world’s leading exploration and production oil companies operating in near 30 countries.  ConocoPhillips explores for, produces, transports and markets crude oil, natural gases and bitumen on a worldwide basis.  They have rewarded shareholders with 12 years of increasing dividends.

Key Metrics

10 YR Dividend Growth Rate

13.56%

10 YR EPS Growth Rate

11.69%

10 YR Average P/E Ratio

10.2

10 YR Average Return on Equity

16.23%

10 YR Average Dividend Payout Ratio

27.1%

Debt to Earnings Ratio

1.78

Investment Thesis

The world population is growing and along with that growth comes increased demand for oil and gas products and services.  Historically oil companies have been generous dividend payers offering investors a higher than average dividend yield.  Dividend growth investors would be served well holding some of the largest and best oil companies in their portfolio and ConocoPhillips is definitely one of them.  Investors will be served well by the above average yield usually offered and by the future continued demand for oil that provides the energy to make the world go and grow.  The price of oil company stocks tends to flow up and down along with the commodity price of oil, however income investors can ride the ups and downs knowing they are collecting large dividend checks along the way.

Cracker Barrel (CBRL)

Company Description

Cracker Barrel Old Country Store, Inc. operates 621 restaurants and gift shops located in 42 states mostly located in the Southern and Midwest United States.  The family values restaurant features an old country style with a country store/gift shop.  Most restaurants have prime locations along the highway making them popular stops for travelers.  In 2012 nearly 80% of sales came from the restaurants while the gift stores made up about 20% of sales.  The casual restaurant company has been paying an increasing dividend to shareholders for the past 10 years.

Key Metrics

10 YR Dividend Growth Rate

65.05%

10 YR EPS Growth Rate

10.89%

10 YR Average P/E Ratio

13.44

10 YR Average Return on Equity

37.84%

10 YR Average Dividend Payout Ratio

19.10%

Debt to Earnings Ratio

4.87

Investment Thesis

Cracker Barrel offers families a country dining experience.  The company has done a good job growing earnings and dividends through the past decade.  They have lots of room for expansion as they begin to add more stores in nonhighway locations.  Before the recession, Cracker Barrel had a strong stock repurchase program and investors will want to watch for the return of share repurchases as the economy strengthens.  Cracker Barrel offers investors a growing dividend payment and a possibility for continued strong growth in earnings.  However, investors should understand that they should not expect the strong dividend growth that occurred over the past decade due to Cracker Barrel just starting a substantial dividend paying strategy.  Future dividend growth will most likely be more in line with EPS growth.

CSX Corp. (CSX)

Company Description

CSX Corp. provides rail and intermodal transport services through 23 states and two Canadian provinces.  The company operates around 21,000 miles of train tracks connecting the Southeast, Midwest, Northeast United States and Canada.  The principal freight of CSX is coal, fertilizer, chemicals, automobiles, agricultural products and intermodal cargo.  CSX has been increasing dividends for 9 years in a row.

Key Metrics

9 YR Dividend Growth Rate

26.96%

10 YR EPS Growth Rate

17.08%

10 YR Average P/E Ratio

14.21

10 YR Average Return on Equity

13.94%

10 YR Average Dividend Payout Ratio

21.60%

Debt to Earnings Ratio

5.29

Investment Thesis

The railroads connect the United States and is one of the best methods of transportation for large freight.  Coal is one of the main freights of CSX and therefore company earnings are reliant on the demand for coal.  The trend lately has been away from coal towards natural gas for energy needs.  However, CSX has offset weakness in the coal transport market by picking up other freight from truckers due to high gasoline costs.  The railroads are the infrastructure of this country and will continue to be vital for transportation throughout.  Look for CSX to continue being profitable long into the future and to continue raising dividend rates for shareholders.

Darden Restaurants (DRI)

Company Description

Darden Restaurants is the world’s largest casual dining restaurant operator.  The company has about 2,000 restaurant locations in the U.S. and Canada.  Darden Restaurants offers a few different types of dining experiences.  They operate restaurants under the names Olive Garden, Red Lobster, LongHorn Steakhouse, Capital Grille, Bahama Breeze and Seasons 52.  Darden has been increasing dividend payments for the past 8 consecutive years.

Key Metrics

8 YR Dividend Growth Rate

49.53%

9 YR EPS Growth Rate

11.82%

10 YR Average P/E Ratio

14.06

10 YR Average Return on Equity

24.96%

10 YR Average Dividend Payout Ratio

22.20%

Debt to Earnings Ratio

6.04

Investment Thesis

Darden Restaurants offers many popular dining options for consumers.  This is an investor’s opportunity to own one of the nation’s premier casual dining experiences.  Because of their higher end pricing, Darden did and will falter a bit during economic downturns as people cut back on eating out or choose lower priced options.  However, dividend growth investors can rest easy knowing Darden weathered the last big recession by continuing dividend raises right on through.  Darden has had a very high dividend growth rate the past 8 years.  This is because Darden just recently began paying dividends and the high growth rate is due to Darden quickly growing the portion of profits it pays out to shareholders.  Investors should not expect such high growth going forward as Darden is most recently paying out around 50% of earnings per share to owners.  Look for future growth to be more in line with earnings growth.

Deere & Co. (DE)

Company Description

Deere & Co. is the largest manufacturer of farm equipment in the world.  The company also manufactures a range of construction & forestry equipment, lawn & garden tractors and outdoor power equipment.  They are a global company with about 40% of revenues coming outside the U.S.  Many people are familiar with the iconic John Deere green tractors roaming the country working our nation’s crops.  Deere & Co. has a decade worth of growing dividends being paid out to shareholders.

Key Metrics

10 YR Dividend Growth Rate

16.58%

10 YR EPS Growth Rate

27.79%

10 YR Average P/E Ratio

15.8

10 YR Average Return on Equity

24.10%

10 YR Average Dividend Payout Ratio

29.0%

Debt to Earnings Ratio

1.13

Investment Thesis

Everyone needs food to survive and the John Deere tractors that farmers use to harvest crops are a vital component used to help get the food from field to table.  Deere equipment is expensive for the consumer to purchase and therefore there are many factors that can have an effect on new sales.  Drought conditions and recessions that affect farmers’ profits will also affect Deere & Co. as those farmers decide to hold off on upgrading their current equipment.  However, all equipment will one day need replaced and Deere & Co. leads the industry when it comes to tractors.  Deere has solid growth over the last decade in both their earnings and dividend rate to keep investors happy.

Emerson Electric (EMR)

Company Description

Emerson Electric designs and manufactures a range of electrical and electronic products and systems for commercial, industrial and consumer markets.  They have a variety of operating segments including Process Management, Industrial Automation, Network Power, Climate Technologies and Commercial & Residential Solutions.  The Process Management segment accounts for roughly 38% of 2011 earnings while the other segments account for roughly even portions of the remaining earnings.  Emerson Electric has a good amount of international exposure.  In 2012, 59% of sales came internationally.  Emerson Electric is truly a dividend growth company as they have increased dividends annually dating back 56 years.

Key Metrics

10 YR Dividend Growth Rate

7.58%

10 YR EPS Growth Rate

10.40%

10 YR Average P/E Ratio

17.54

10 YR Average Return on Equity

21.49%

10 YR Average Dividend Payout Ratio

48.10%

Debt to Earnings Ratio

2.16

Investment Thesis

Emerson Electric has a long history of dividend growth dating back 5 decades that should give dividend growth investors comfort knowing management is dedicated to keeping the streak alive.  Emerson is truly a global company and offers investors good exposure to the industrial manufacturing industry.  Emerson receives high marks for financial strength and their modest growth should benefit most investor portfolios over the long term.

Exxon Mobil (XOM)

Company Description

Exxon Mobil is the world’s largest publicly traded oil company.  The main business involves the exploration for and production of crude oil, natural gas and petroleum products.  Exxon Mobil has been rewarding investors for a very long time by increasing dividend payments annually dating back 30 years.

Key Metrics

10 YR Dividend Growth Rate

9.90%

10 YR EPS Growth Rate

19.67%

10 YR Average P/E Ratio

12.88

10 YR Average Return on Equity

26.82%

10 YR Average Dividend Payout Ratio

27.20%

Debt to Earnings Ratio

0.34

Investment Thesis

If you want to own one of the best oil companies in the world then Exxon Mobil should be considered for your portfolio.  There will certainly be no decrease in the demand for oil and natural gas anytime in the near future.  Demand should stay high as the economy improves and emerging markets continue to grow.  Owners of energy companies will stand to profit long into the future.  Exxon Mobil has a strong history of dividend growth, a very strong balance sheet, a solid share repurchase program, growing earnings and plenty of room to continue increasing the dividend payment to shareholders far into the future.

General Electric (GM)

Company Description

General Electric is one of the world’s largest and most diversified technology and financial services companies.  They manufacture and sell products such as aircraft engines, water processing, power generation, household appliances, medical imaging, industrial products and business and consumer financing.  General Electric has customers in over 100 countries.  This industrial giant has been increasing dividends for 3 years in a row.

Key Metrics

3 YR Dividend Growth Rate

18.22%

3 YR EPS Growth Rate

13.85%

10 YR Average P/E Ratio

16.39

10 YR Average Return on Equity

15.29%

10 YR Average Dividend Payout Ratio

52.40%

Debt to Earnings Ratio

25.78

Investment Thesis

Unfortunately for investors, General Electric got caught with too much financial risk back in the financial crisis of 2008.  Previously a long time dividend grower, in 2009 General Electric was forced to cut its dividend rate.  However, GE is one of the world’s largest and most profitable companies and therefore deserves consideration for your investing portfolio.  As GE reduces financial risk by unraveling their GE Capital division, investors can feel good the company is making solid efforts towards making sure they don’t get caught up again in any future financial meltdowns.  GE has begun a simplification initiative focused on reducing complexity, increasing speed and refocusing investments around the company’s core operations.  They also are focused with an increased emphasis on returning earnings to shareholders through dividend payments.  Look for GE to continue to grow profits and dividends into the future.

General Mills (GIS)

Company Description

General Mills is a well-known consumer foods company.  They make their profits selling great cereal brands including Cheerios, Wheaties, Total and Chex.  They also market and sell Betty Crocker, Bisquick, Hamburger Helper, Yoplait and Progresso brands.  They are an international food company with roughly 25% of sales coming internationally.  General Mills has been paying out annually increasing dividends to shareholders for 10 years.

Key Metrics

10 YR Dividend Growth Rate

10.70%

10 YR EPS Growth Rate

11.66%

10 YR Average P/E Ratio

16.05

10 YR Average Return on Equity

23.25%

10 YR Average Dividend Payout Ratio

42.6%

Debt to Earnings Ratio

4.88

Investment Thesis

General Mills sells some of the most recognized cereal and other food brands in the United States.  Increasing commodity costs and inflation can weigh on the company’s bottom line and be a risk for investors.  However, General Mills has been around for a very long time selling Cheerios and other great brands.  General Mills is amongst the leaders in the consumer foods industry and investors will do well to have some General Mills exposure along with other food companies.  Dividend growth investors will continue to be rewarded as consumers stay loyal to their favorite brands of cereals, yogurt and other foods.

Genuine Parts Company (GPC)

Company Description

Genuine Parts main business is as a distributor of automotive replacement parts in the U.S., Canada and Mexico.  The company also distributes industrial replacement parts, business products and electronic components.  This has been a good company for dividend growth investors as they have a streak of paying increasing dividends dating back 57 years.

Key Metrics

10 YR Dividend Growth Rate

6.18%

10 YR EPS Growth Rate

7.02%

10 YR Average P/E Ratio

15.51

10 YR Average Return on Equity

17.45%

10 YR Average Dividend Payout Ratio

53.0%

Debt to Earnings Ratio

0.88

Investment Thesis

Genuine Parts has one of the longest dividend growth streaks of any publicly traded company.  Investors in Genuine Parts should enjoy continued dividend growth as the company continues to make money.  This is a compelling company to hold in an investment portfolio especially during economic downturns when people will look to save money by repairing their automobiles rather than purchasing new.  Genuine Parts doesn’t offer the highest growth when comparing dividend growth companies, however the long dividend streak and low volatility of the stock makes this company a good fit for most any dividend growth portfolio.

Harris Corporation (HRS)

Company Description

Harris Corporation is a technology company involved in the development, design, manufacture, marketing and servicing of high tech communications systems for government and commercial customers.  Selling radio communications equipment has been profitable for this company and they have shared the wealth with investors by paying out increasing dividends for 11 years.

Key Metrics

10 YR Dividend Growth Rate

24.91%

10 YR EPS Growth Rate

22.52%

10 YR Average P/E Ratio

15.39

10 YR Average Return on Equity

19.65%

10 YR Average Dividend Payout Ratio

19.50%

Debt to Earnings Ratio

3.54

Investment Thesis

Harris Corporation is an appealing choice for dividend growth investors as they offer a chance for higher earnings and dividend growth compared to the more established companies normally held in dividend growth portfolios.  Since the recession in 2008, Harris has been trading at a considerably lower P/E ratio as investors are unwilling to pay a premium for this company although they have been growing earnings and dividends every year.  There is a risk in Harris Corp as governments try to rein in spending and lower national deficits.  In fact, Harris Corporation had 34% of total 2012 sales come from the U.S Government and any attempt to cut military spending could directly affect Harris.  As with all companies, Harris Corp should be monitored closely for signs of deteriorating sales, earnings and dividend conditions.  However, unless government spending is drastically reduced, Harris should continue to do good business far into the future as militaries and consumers continue purchasing advanced communications equipment.

Hasbro, Inc. (HAS)

Company Description

Hasbro is one of the world’s largest toy manufacturers.  Hasbro has many great toy brands including Playskool, Milton Bradley, Parker Brothers, G.I. Joe, Transformers, Nerf, Tonka and My Little Pony.  They are a global company with about 50% of sales coming internationally.  Hasbro also markets and sells toys in the Marvel comic book product line.  These toys have been a boost to the company lately with the popularity of Marvel movies such as Avengers and Iron Man.  Owners of Hasbro shares have enjoyed 10 years of increasing dividend payments.

Key Metrics

10 YR Dividend Growth Rate

29.57%

10 YR EPS Growth Rate

16.19%

10 YR Average P/E Ratio

15.82

10 YR Average Return on Equity

18.83%

10 YR Average Dividend Payout Ratio

27.10%

Debt to Earnings Ratio

4.39

Investment Thesis

Hasbro is one of the leading toy companies and there is no reason to believe parents will start buying less toys for their children anytime in the near future.  Hasbro should continue to earn money especially with the increased popularity due to the Marvel comic movies.  The dividend growth has been very good over the past decade as management has shown an interest in paying out a higher percentage of profits to owners in the form of dividends.  Owning Hasbro gives dividend growth investors exposure to one of the world’s most popular toy companies.

Hormel Foods Corporation (HRL)

Company Description

Hormel Foods is an international consumer branded meat and food products company.  Some of the well-known brands sold include Hormel, SPAM, Dinty Moore, Jennie-O and Always Tender.  Hormel is an international food company that distributes their products throughout the U.S. and world.  The selling of meat and other food products has allowed Hormel to pay out increasing dividends for 47 years in a row.

Key Metrics

10 YR Dividend Growth Rate

12.47%

10 YR EPS Growth Rate

10.59%

10 YR Average P/E Ratio

16.25

10 YR Average Return on Equity

16.10%

10 YR Average Dividend Payout Ratio

28.70%

Debt to Earnings Ratio

0.50

Investment Thesis

Hormel is a major player in the food processing industry and they look to expand even more.  Recently it was announced that Hormel would purchase the Skippy peanut butter brand to add to their lineup of products.  Skippy is the number 1 peanut butter brand in China and Hormel looks to use this status as they plan on growing and expanding the company even more globally.  Hormel is a leading food company and dividend growth investors should appreciate the near 5 decade long streak of dividend increases.  Hormel generally offers a lower dividend yield but there will be times investors can pick up shares when the company is yielding over 2%.  Along those same lines they offer a decent dividend growth rate along with plenty of room in the payout ratio to boost the dividend in the future.  There is always risk of increasing commodity prices but this seems to be the case with all food products companies.

Johnson & Johnson (JNJ)

Company Description

Johnson & Johnson is a leader in healthcare field products.  They operate in three business segments.  The Consumer segment sells baby care, skin care, oral care and similar products.  The Pharmaceutical segment develops and sells many health prescription and over the counter medications.  The Medical Devices & Diagnostics segment develops, manufactures and sells a various range of medical equipment.  Johnson & Johnson is a true dividend growth stock with 51 years of growing dividend income payments.

Key Metrics

10 YR Dividend Growth Rate

11.12%

10 YR EPS Growth Rate

8.65%

10 YR Average P/E Ratio

16.65

10 YR Average Return on Equity

27.71%

10 YR Average Dividend Payout Ratio

38.50%

Debt to Earnings Ratio

1.22

Investment Thesis

Johnson & Johnson offers investors good exposure to the healthcare field from a company that has been making profits for a very long time.  This company should be a staple in most dividend growth portfolios as they have one of the longest histories of continued dividend growth amongst publicly available stocks.  Management has shown a commitment to paying increasing dividends and has done a very good job running the company in a profitable way that has allowed them to continue their dividend growth reputation for over 5 decades.

Kellogg Company (K)

Company Description

Kellogg Company is the world’s largest manufacturer of cereal foods.  The company also produces many other convenience foods including cookies, crackers, frozen waffles, toaster pastries and snack bars.  Some of the most famous brands sold by Kellogg’s includes Keebler cookies, Pringles chips, Frosted Flakes cereal, Rice Crispies cereal, Frosted Mini-Wheats cereal, Froot Loops cereal, Nutri-Grain breakfast bars, Pop-Tarts toaster pastries and Eggo frozen waffles.  Kellogg has good international exposure accounting for 29% of 2011 profits.  The breakfast foods company has been growing dividends for 9 years in a row.

Key Metrics

9 YR Dividend Growth Rate

6.37%

10 YR EPS Growth Rate

6.54%

10 YR Average P/E Ratio

17.17

10 YR Average Return on Equity

54.09%

10 YR Average Dividend Payout Ratio

46.70%

Debt to Earnings Ratio

6.59

Investment Thesis

Along with General Mills, Kellogg’s is the other major player in the breakfast cereals and foods category.  Investors will want to have a piece of both companies in their portfolio as consumers continue their consumption of quick breakfast meals into the future.  Kellogg’s offers many popular brands for consumers to choose from and investors can feel good walking down the aisles of grocery stores and seeing many Kellogg’s brand products being picked up by customers.  Kellogg’s has good international exposure with plenty of room for growth.  Kellogg Company offers the investor average growth in the dividend and EPS figures.

Lorillard, Inc. (LO)

Company Description

Lorillard is the third largest cigarette manufacturer in the United States.  Brands include Newport, Kent, True, Maverick and Old Gold.  Lorillard hasn’t been its own company long as it was spun off from parent corporation Loews back in 2008.  Lorillard makes all of their money in the United States and in 2011 the brand Newport accounted for 88% of sales revenues.  Lorillard is a committed dividend growth company that has paid out annually increasing dividends since becoming its own company back in 2008.

Key Metrics

5 YR Dividend Growth Rate

12.33%

5 YR EPS Growth Rate

10.39%

5 YR Average P/E Ratio

12.4

5 YR Average Return on Equity

NA

5 YR Average Dividend Payout Ratio

61.2%

Debt to Earnings Ratio

2.83

Investment Thesis

Lorillard has the most popular selling brand of menthol cigarettes in Newport.  They have also recently acquired Blu Ecigs to venture into the newer electronic cigarettes market.  Lorillard offers a higher yield than many other great dividend growth companies.  However, along with the higher yield comes an increase in risk.  The tobacco industry is often under attack in the United States due to the health risk effects of smoking.  If there is a decline in the number of smokers due to realization of health risks and also due to the higher and higher taxes on tobacco products, sales and profits from tobacco companies could decline.  Lorillard is a good company that might be very profitable for investors in the future.  However, investors are advised to monitor this company closely for signs of trouble.

McDonald’s Corporation (MCD)

Company Description

McDonald’s operates and franchises over 34,000 fast-food restaurants in the United States, Canada and internationally.  Around 80% of restaurant locations are franchises with the other 20% under control of the company.  McDonald’s is famous for selling their Big Mac hamburgers, French fries and Happy Meals.  In 2011, foreign sales comprised 57% of operating profits.  This fast food legend has been increasing dividend payments for shareholders for the past 36 years.

Key Metrics

10 YR Dividend Growth Rate

22.64%

10 YR EPS Growth Rate

15.04%

10 YR Average P/E Ratio

15.71

10 YR Average Return on Equity

26.43%

10 YR Average Dividend Payout Ratio

42.50%

Debt to Earnings Ratio

2.43

Investment Thesis

McDonald’s is the leading fast food restaurant in the world.  You can find a McDonald’s located in almost every city and town in the United States serving hamburgers and French fries.  McDonald’s is growing by spreading internationally as they add stores in Europe and Asia.  Food companies face pressure with rising food commodity costs.  McDonald’s pricing model is based on low cost foods and therefore may have trouble passing on higher costs to consumers.  However, owners can feel good knowing they own one of the most recognized restaurant brands in the world.  McDonald’s also does fairly well in tougher times as consumers turn towards their lower priced food options such as the Dollar Menu.  Investors will be happy owning this shareholder friendly company that returns profits to its owners in the form of share repurchases and dividend payments.

Microsoft (MSFT)

Company Description

Microsoft Corporation is the largest maker of software.  They develop and sell software products for a wide range of computing devices.  Popular programs by Microsoft include their Windows computer operating system and their Microsoft Office products including Word, Excel, PowerPoint, Outlook and others.  For entertainment, Microsoft is a major player in the video game industry as the maker of the Xbox gaming system.  Microsoft’s dominate position in the computer industry has allowed the company to pay out increasing dividends to shareholders for 10 years in a row.

Key Metrics

10 YR Dividend Growth Rate

27.66%

10 YR EPS Growth Rate

11.21%

10 YR Average P/E Ratio

17.92

10 YR Average Return on Equity

33.70%

10 YR Average Dividend Payout Ratio

23.30%

Debt to Earnings Ratio

0.61

Investment Thesis

Microsoft is a powerhouse in the technology sector.  Companies and consumers around the globe rely almost religiously on Microsoft products to help them operate their computers, create work documents and have a little fun.  While consumer demand for personal computers is down, Microsoft is working towards adaptation with the creation of their Windows Live operating system.  This will help Microsoft expand into the tablet and smart phone markets.  Dividend investors should be rewarded over the long term by owning this tech giant through increasing earnings and dividend payments.

Norfolk Southern (NSC)

Company Description

Norfolk Southern is a railway company operating about 21,000 miles of railroad track in 22 eastern and southern states.  In 2012, NSC made 26% of revenues from coal, 20% from intermodal transport, 13% from agriculture, consumer products and government transport, 12% from metals and construction and 29% from other.  This railroad company has been rewarding shareholders with 11 years of annually increasing dividend payments.

Key Metrics

10 YR Dividend Growth Rate

20.89%

10 YR EPS Growth Rate

16.36%

10 YR Average P/E Ratio

13.61

10 YR Average Return on Equity

10.10%

10 YR Average Dividend Payout Ratio

27.60%

Debt to Earnings Ratio

4.94

Investment Thesis

Norfolk Southern is a leading rail company in the United States.  The risk with railroad companies is the falling demand in coal recently as energy companies begin using natural gas in its place.  However, the cost of commodities will ebb and flow and most likely coal will continue to be an important resource throughout the world.  Norfolk Southern and other railroads will continue to be the transportation source for coal and other goods.  Norfolk Southern has a decent balance in 2012 of different types of freights.  Expect companies to continue looking towards rail transport as a cheaper alternative to freight transport compared to the trucking industry.

PepsiCo (PEP)

Company Description

PepsiCo operates four major businesses.  Frito-Lay North America sells snack foods and accounted for around 29% of profits in 2011.  PepsiCo Beverages North America sells Pepsi cola and other brands making up around 28% of profits in 2011.  Quaker Foods sells food products accounting for 7% of 2011 profits.  PepsiCo International sells all Pepsi brand snacks and beverages globally and accounted for roughly 36% of 2011 profits.

The big brands sold by PepsiCo include Pepsi Cola, Gatorade, Mountain Dew, Tropicana, Doritos, Ruffles chips and Lay’s Chips.  Selling some of the world’s most popular beverages and snack foods has proven to be very profitable for owners.  Investors in PepsiCo have enjoyed 41 years of annually increasing dividends.

Key Metrics

10 YR Dividend Growth Rate

13.68%

10 YR EPS Growth Rate

7.66%

10 YR Average P/E Ratio

19.0

10 YR Average Return on Equity

33.12%

10 YR Average Dividend Payout Ratio

39.70%

Debt to Earnings Ratio

4.38

Investment Thesis

PepsiCo sells some of the world’s greatest snack foods and beverages.  It is hard to imagine a day when people won’t be drinking Pepsi and Mountain Dew or snacking on Doritos.  However, there are risks with this snack food giant.  Rising commodity prices will force PepsiCo to increase prices which might not sit well with price conscious consumers.  There is also an increasing awareness of health and the negative effects of consuming too much soda beverages and snack foods.  As consumers become more health conscious, they may begin to look for healthier snacking options.  However, I believe there will always be a large population of consumers willing to indulge in the many options PepsiCo offers.  PepsiCo should continue to be a world leader in the snack and beverage categories and investors should continue to enjoy annually increasing dividend payments.

Philip Morris International (PM)

Company Description

Philip Morris is a tobacco company which manufactures, sells and distributes a wide range of products in markets outside of the United States.  Brands include Marlboro, Philip Morris and Parliament.  In 2012 profits came from 29.6% European Union; 26.3% Eastern Europe, Middle East and Africa; 36.7% Asia and 7.4% North America.  Philip Morris was spun off from parent company Altria back in 2008.  The international tobacco giant has been increasing dividends for 5 years in a row.

Key Metrics

5 YR Dividend Growth Rate

27.73%

4 YR EPS Growth Rate

11.71%

5 YR Average P/E Ratio

14.36

5 YR Average Return on Equity

NA

5 YR Average Dividend Payout Ratio

55.20%

Debt to Earnings Ratio

2.32

Investment Thesis

Philip Morris has a distinct advantage over its tobacco industry peers which is its multiple country market.  As certain countries implement more and more tobacco legislation and taxes, Philip Morris can focus attention on other areas.  Philip Morris sells tobacco products in over 200 countries worldwide.  While tobacco consumption may be on the decline in the United States, it is a good idea to get exposure to the international tobacco market.  Investors can accomplish this through an investment in Philip Morris.  World travelers will note that internationally, cigarette smoking is still very popular and continuing to increasing in certain markets.  Investors should enjoy Philip Morris growing dividend alongside the company’s generous share repurchase program.

Procter & Gamble (PG)

Company Description

Procter & Gamble is a world leading consumer products company selling brands in roughly 180 countries around the globe.  PG’s beauty segment accounted for roughly 22% of 2012 earnings, the grooming segment provided roughly 16% of 2012 earnings, the Health Care segment made up roughly 17% of 2012 earnings, the Fabric Care & Home Care segment made up roughly 2% of 2012 earnings and the Baby Care & Family Care segment provided roughly 19% of 2012 earnings.  Procter & Gamble is truly a global company with 65% of 2012 sales coming internationally.

Some well-known brands include Bounty, Cascade, Pampers, Luvs, Iam’s pet foods, Charmin, Tide, Duracell and Gillette.  In fact, PG has 25 brands that each generate more than one billion dollars in sales for the company.  As you can see Procter & Gamble makes their money by selling a wide range of consumer products.  This has allowed Procter & Gamble to be a true dividend king by raising dividend payments to shareholders every year for the past 57 years.

Key Metrics

10 YR Dividend Growth Rate

11.38%

10 YR EPS Growth Rate

7.90%

10 YR Average P/E Ratio

19.11

10 YR Average Return on Equity

22.99%

10 YR Average Dividend Payout Ratio

43.80%

Debt to Earnings Ratio

2.81

Investment Thesis

Procter & Gamble has a very long reputation of dividend growth.  Every day consumers are purchasing and using Procter & Gamble brands.  Procter & Gamble will continue to be a leading consumer products company well into the future.  Dividend growth investors would be served well allocating a portion of their portfolio in Procter & Gamble stock.  PG is a stable company that offers income investors a decent yield and lower volatility.

Reynolds American (RAI)

Company Description

Reynolds American is the second largest producer of cigarettes in the United States behind Altria.  Reynolds American sells many popular brands including Winston, Camel, Salem, Pall Mall, Kool and Doral.  This tobacco giant has been passing on earnings in the form of increasing dividends to shareholders 8 years in a row.

Key Metrics

10 YR Dividend Growth Rate

10.25%

10 YR EPS Growth Rate

9.86%

10 YR Average P/E Ratio

13.85

10 YR Average Return on Equity

16.20%

10 YR Average Dividend Payout Ratio

70.40%

Debt to Earnings Ratio

1.96

Investment Thesis

Reynolds American is another very profitable tobacco company.  Tobacco companies are appealing to dividend growth investors because they typically return a large portion of profits to shareholders in the form of dividends and share repurchase programs.  Reynolds American pays out a large portion of earnings to shareholders usually giving them an appealing dividend yield.  There is always risk with tobacco companies as consumers shy away from smoking due to health risks.  Investors in tobacco companies need to make sure to be diligent when it comes to monitoring underlying fundamentals of the company including sales, net profits, earnings per share and dividend rates.

Union Pacific (UNP)

Company Description

Union Pacific Corporation owns the largest railroad in the United States.  They operate nearly 32,000 route miles serving the western two-thirds of the U.S.  The 2012 revenues were made up from 19% coal, 20% intermodal freight, 16% agriculture, 17% industrial, 16% chemicals and 9% automotive.  The great railroad of the west has been great for shareholders providing 7 years of increasing dividend payments.

Key Metrics

7 YR Dividend Growth Rate

24.36%

10 YR EPS Growth Rate

14.42%

10 YR Average P/E Ratio

15.87

10 YR Average Return on Equity

12.26%

10 YR Average Dividend Payout Ratio

26.50%

Debt to Earnings Ratio

2.28

Investment Thesis

If you want to own the largest railroad in the U.S. and the main railroad serving the western United States then look no further than Union Pacific.  Union Pacific generates revenues from a good variety of freight types.  This will help allow Union Pacific to weather any weakness in any market segment such as coal or agriculture.  Railroads will always be one of the leading methods of freight transportation throughout the country.  Investors should be happy owning the largest company in this railway industry.

Walgreen Company (WAG)

Company Description

Walgreen’s is the largest drug retail chain and distributor in the United States.  They operate over 8,000 drugstores throughout the 50 states and in Puerto Rico.  Walgreen’s also operates worksite facilities, home care facilities, mail service facilities and specialty pharmacies.  Pharmacy sales contributed to 63% of sales in 2012 and other general merchandise contributed to 37% of sales.  Pharmacy sales is a good business to be in as it has allowed Walgreen’s to raise dividends for 37 years in a row.

Key Metrics

10 YR Dividend Growth Rate

21.26%

10 YR EPS Growth Rate

9.95%

10 YR Average P/E Ratio

20.50

10 YR Average Return on Equity

15.97%

10 YR Average Dividend Payout Ratio

19.70%

Debt to Earnings Ratio

2.44

Investment Thesis

With the population of the United States aging, the sale of prescription drugs won’t be a bad business to be in.  Walgreen’s is the nation’s largest drugstore chain.  They offer a well-known name and convenient locations for consumers looking to fill their prescription needs.  Recently, Walgreen Company acquired a 45% stake in the British health and beauty group Alliance Boots giving them a foot in the door for international expansion.  Walgreen’s offers a compelling business with increasing demand as the population continues to age to go along with the increasing dividends they are paying out to shareholders.

Wal-Mart Stores (WMT)

Company Description

Wal-Mart Stores, Inc. is the world’s largest retailer.  The operate discount stores, Neighborhood Market grocery stores, supercenters (combined discount store and grocery store) and Sam’s Club warehouse membership stores.  They have a large international exposure with many stores in Latin America, Asia, Canada and the U.K.  Groceries are a large part of Wal-Mart revenues, accounting for about 55% of U.S. sales in 2012.  This discount retailer has been rewarding shareholders with dividend increases for 39 consecutive years.

Key Metrics

10 YR Dividend Growth Rate

17.97%

10 YR EPS Growth Rate

10.74%

10 YR Average P/E Ratio

16.80

10 YR Average Return on Equity

20.82%

10 YR Average Dividend Payout Ratio

26.70%

Debt to Earnings Ratio

3.17

Investment Thesis

Wal-Mart is the most dominate retailer in the United States.  The company offers the lowest discount prices for merchandise giving them a large consumer base of price driven customers.  Wal-Mart fares well during harder economic times as consumers look towards their lower prices to help them cut their bills.  While there certainly is some good competition from the likes of Target and Costco, Wal-Mart is still the leading player in the industry.  Wal-Mart is a money making machine and has a reputation of passing on earnings to shareholders in the form of growing dividends.  As you can see from the 10 YR EPS Growth Rate of 10.74%, Wal-Mart has done a very good job growing profits over the past decade for its owners.  Many believe Wal-Mart has been a poor investment this past decade.  This has only been the case because Wal-Mart was grossly overvalued towards the beginning of the decade.  Since then the earnings have caught up with valuation and Wal-Mart once again looks like a very attractive investment for long term dividend growth investors.

Wells Fargo & Company (WFC)

Company Description

Wells Fargo & Company is one of the largest bank holding companies in the U.S.  They have over 9,000 bank locations and 12,000 ATMs.  Wells Fargo has offices in over 35 countries including the U.S., Canada, Caribbean and Central America.  Many banks were forced to cut their dividend rate during the financial crisis back in 2009 and Wells Fargo was no exception.  However, since the cut, Wells Fargo has increasing their dividend rate annually again.

Key Metrics

3 YR Dividend Growth Rate

81.71%

10 YR EPS Growth Rate

7.31%

10 YR Average P/E Ratio

15.79

10 YR Average Return on Equity

13.58%

10 YR Average Dividend Payout Ratio

49.50%

Debt to Earnings Ratio

7.01

Investment Thesis

Back in 2008 and 2009, many financial stocks were hit hard by the collapse in the banking industry.  Many dividend growth investors got burned by holding these banks as staples in their dividend growth portfolios.  It was an important lesson to learn.  Even companies with long history of dividend growth can falter and sometimes will.  The banking industry wasn’t as bullet proof for dividend investors as all had hoped.

So why include a risky bank stock in this group of 35 top dividend growth stocks?  It is important to consider banks for our portfolio to help add to our total diversification.  When looking over the U.S. banks, Wells Fargo is one of the strongest worth considering.  Wells Fargo has been increasing their credit quality and is looking to expand their geographic reaches.  This should help lower risk by diversifying the loan base going forward.  Wells Fargo is one of the strongest bank operators in the industry.  And if you prefer endorsements, then surely you will appreciate that Wells Fargo is one of the largest stock holdings by Warren Buffet’s Berkshire Hathaway company.

Conclusion

Dividend growth investing is a great strategy for building your wealth!  I’ve given you a good introduction to the ideas behind dividend growth investing.  I’ve given you 35 of the top dividend growth companies that you may want to consider purchasing for your portfolio.  In the end it is really up to you!  Everything you achieve in life is a result of your past actions.

Don’t just casually read this information and move on to the next thing.  Figure out what investment strategy works for you and get started.  Start putting aside a portion of your income to purchase investments for your future.  Learn everything you can about investing and put that knowledge to work.

If the dividend growth strategy sounds like the perfect investing style for your temperament then build a long term plan and get started.  To learn more about building a dividend growth plan, creating your investing rules and creating long term wealth through dividend growth investing, be sure to visit my website at http://www.dividendgrowthstockinvesting.com.  And last, if dividend growth investing sounds right for you, be sure you sign up for my Free Monthly Dividend Growth Investing Newsletter!

Table of Contents

INTRODUCTION

The Strategy of Dividend Growth Stock Investing

Why Invest in Dividend Growth Companies?

Goals of Dividend Growth Investors

My Dividend Growth Stock Criteria

The Stocks

Conclusion