Companies that raise dividends show confidence in their financial performance for the foreseeable future. When management expects lackluster performance, they are more likely to freeze or even cut distributions. For example, back in 1998-1999 when the future of the tobacco companies was uncertain, the Board of Directors of Altria (NYSE: MO) maintained the dividend payment for 7 consecutive quarters. But after they realized that the company would be able to survive, they kept raising dividends and were able to maintain the annual growth in distributions uninterrupted.
I have highlighted several “sin stocks”, which not only have strong competitive advantages, but have also managed to consistently raise distributions for many years in a row:
Altria Group, Inc. (NYSE: MO), through its subsidiaries, engages in the manufacture and sale of cigarettes, wine, and other tobacco products in the United States and internationally. This dividend champion has increased dividends for 43 years in a row. The company is a dominant player in the US tobacco market, with a 50% market share in 2009. This mature market is in decline however, and as a result future growth in earnings per share could be difficult to materialize. They would likely come from efficiencies related to restructuring, such as the closure of its Cabarrus facility as well as the integration of smokeless tobacco company UST, which Altria acquired in 2008. Yield: 5.90% (analysis)
Philip Morris International Inc. (NYSE: PM) , through its subsidiaries, engages in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States. The company has consistently raised distributions since Altria (NYSE: MO) spun it off in 2008. The number of smokers is decreasing in Western Europe, although the price increases have been able to offset any declines in revenues. In addition to that, growth in emerging markets for the brand products the company is producing should boost profitability in the long run. Strategic acquisitions should also add to the bottom line, as would synergies and strategic cost efficiencies are realized over time. Yield: 4% (analysis)