For dividend investors, there’s good news … and bad news.
The good news is that, if you’re looking for income, it sure hasn’t been hard to find. As of the second quarter’s end, the percentage of stocks paying dividends in the S&P 500 was sitting at a 15-year high. And zooming in on just the last decade, aggregate dividend payments have doubled overall.
The bad news, though, is that many dividend-paying stocks sport misleading headline yields or unsustainable payouts — hardly the kind of income stock you want to snatch up for the long haul, or as a way to weather the current political menu of a government shutdown for dinner and the debt ceiling crisis for dessert.
With that in mind, we sorted through piles of dividend stocks to find some that do offer sustainable, surefire payouts for loyal shareholders thanks to impressive payout histories and sustainable payout ratios.
Take a look:
Johnson & Johnson
Dividend Yield: 3.02%
Johnson & Johnson (JNJ) isn’t dependable just because it provides everything from Band-Aids to Tylenol to baby shampoo. It also provides shareholders with steady-eddy dividend. Yes, Johnson & Johnson has been paying a dividend since 1944 — a long enough track record to make it a Dependable Dividend stock.
Plus, JNJ boasts a mind-blowing 51 consecutive years of dividend increases, with the payout more than tripling in the past decade alone.
That trend will more than likely continue considering Johnson & Johnson paid out a reasonable $2.40 per in dividends last year — only 47% of its adjusted earnings. Factoring in a recent dividend increase, JNJ is slated to tally a $2.59-per-share annual payout for 2013 — also 47% of the $5.46 per share Johnson & Johnson is slated to earn.
If you want consistency, you got it.
Things look just as promising when you consider cash. JNJ’s payout was just over half of its $4.43 in free cash flow per share for 2012. And the diversified consumer goods giant boasted over $17 billion on its balance sheet in the most recent quarter — a pretty hefty cushion in case waters get rough here or there.
Dividend Yield: 3.31%
If you’re looking to dig up a solid dividend, look no further than oil and gas giant Chevron (CVX). The Dependable Dividend stock has been paying a dividend for an jaw-dropping 101 years, and has increased that payout by over 185% in the past decade alone.
On top of that, you can count on that dividend for the long haul. In 2012, Chevron paid out $3.51 per share in dividends — less than 28% of its total adjusted earnings for the year.
Plus, CVX upped its quarterly payout this year — something its done every year since the turn of the century — and that $4-per-share annual payout still looks sustainable, as the company is slated to earn $12.16 for the year.
The one thing to note is that Chevron does have a high payout ratio when you compare its dividend to its free cash flow, as a good chunk of the company’s operating cash goes to capital expenditures — which have been on the way up of late. But there’s still some wiggle room; last year’s dividends took up a manageable 86% of free cash flow, and earnings (and thus FCF) are slated for solid growth of 7% per year over the next half-decade.
And for the cherry on top, Chevron has a huge war chest of cash to dip into if things get a little rocky — and that cash cache has been growing in recent years. At the end of the most recent quarter, the oil and gas giant had more than $20.6 billion in cash and equivalents vs. a mere (relatively speaking, of course) $8 billion back in 2009.
Bank of Montreal
Dividend Yield: 4.23%
Head north of the border and you’ll come across Bank of Montreal (BMO), our final safe income pick. If you were impressed by Chevron’s century of dividend payments, consider this: BMO has been rewarding loyal shareholders since 1829. For perspective, remember that the U.S. was just over 50 years old at that time.
Bank of Montreal also hasn’t been shy about ramping up its payments. Over the past decade, BMO’s dividend has soared 120%, including increases in 2012 and 2013.
Last year’s bump put BMO’s annual payout at $2.82 per share — a reasonable 50%, give or take, of the company’s earnings and free cash flow.
And factoring in the most recent increase — which bumped the quarterly payout to 74 cents per share, good for a yield north of 4% — the dividend looks just as sustainable. Based on expected adjusted earnings, Bank of Montreal will be using only 48% of its earnings to reward shareholders this year, and 46% of its earnings next year.
And that’s only if it doesn’t toss shareholders yet another dividend boost. And such a boost seems likely considering BMO is slated for double-digit earnings growth over the next half-decade — higher than the industry average.
As of this writing, Alyssa Oursler did not hold a position in any of the aforementioned securities.