When it comes to high-yield stocks, many big payouts are too good to be true. Many battered companies feature sky-high yields, but that’s simply a product of math — if dividend yield is the payout divided by the stock price, and that stock price gets smaller, the yield will naturally get bigger.
But crumbling stocks’ dividends are far from safe.
The same can’t be said about dividend aristocrats — stocks with enough financial stability that they’ve been able to raise dividends for at least 25 consecutive years. That’s as much proof as you can get that a company knows how to handle its cash, and how to spend it on investors, without putting its business in danger.
Of course, many dividend aristocrats still feature piddling yields — some lower than 1%. What’s more enticing to income investors is a dividend aristocrat that not only grows its payouts, but also offers a substantially high yield.
So, today we’ll be looking at three such dividend aristocrats that are recording decades of dividend growth while also yielding at least 4%.
Dividend Aristocrats to Buy: AT&T (T)
Dividend Yield: 5.5%
Consecutive Years of Increases: 30
Since starting its dividend program in 1984, AT&T (T) hasn’t missed a beat. The first increase to the T stock dividend came in 1985, and AT&T has been steadily adding to its regular payout ever since.
AT&T is one part of what most still call a virtual duopoly within the telecommunications industry in the United States. According to Strategy Analytics, AT&T has 122 million wireless subscribers while Verizon Communications (VZ) has 133 million. T-Mobile (TMUS) and Sprint (S) combined sport a mere 113 million.
While telecom is far from a high-growth business anymore, AT&T still managed to report a slight uptick in Q2 revenues while adding 2.1 million new wireless subscribers during the period. Free cash flow also grew, to $4.5 billion, and that’s what you want to hear when you’re talking about the sustainability of dividends.
AT&T’s excellent dividend history, current high yield and great financial position make T stock a no-brainer if you’re looking for new sources of income.
Dividend Aristocrats to Buy: Consolidated Edison (ED)
Dividend Yield: 4.1%
Consecutive Years of Increases: 41
Consolidated Edison (ED) is a major American utility company (best known for serving the New York City), and that’s practically synonymous for reliable, consistent financials.
Now, because utilities are regulated, ConEd can’t dramatically increase prices from year to year, but it can modestly hike them regularly, giving the company (and investors) a good idea of what future revenues and profits will look like.
The slow crawl forward continued this past quarter, as Consolidated Edison posted EPS growth of 2%, while over the past year EPS has risen 3%. That doesn’t sound exciting, and it isn’t — but 2% to 3% growth year in, year out, is growth. That’s all you can really expect out of utilities.
What you also can expect out of utilities (most of them, anyway) is consistent and often substantial dividends. ConEd has been upping the ante for 41 consecutive years, and the dividend payout ratio of 68%, while high, isn’t so lofty that ED will be in danger of snapping that streak.
Dividend Aristocrats to Buy: Chevron (CVX)
Dividend Yield: 5.1%
Consecutive Years of Increases: 27
Lastly, we have Chevron (CVX), the big oil and gas company. And like most oil and gas companies, CVX has been taken to the woodshed.
However, after losing more than 30% over the past year, shares of Chevron stock are trading at less than 10 times earnings. At the same time, Chevron’s yield has risen to north of 5%.
Investors should note that Chevron isn’t falling for no reason. Depressed oil prices are hitting Chevron hard — for instance, in its second quarter, CVX earned just 30 cents per share versus $2.98 in the year-ago period.
Still, it’s reassuring that even at an average oil price of $50 per barrel in the second quarter, Chevron still could turn a profit — something many others in the space weren’t able to do. That’s in part because CVX is experiencing higher margins in its refinery business. (Diversification saves the day!)
Oil and gas prices won’t stay low forever. When they rebound, Chevron will be among the beneficiaries. Until then, you can collect 5% per year just to wait.
As of this writing, Matt Thalman did not own shares of any company mentioned above. Follow him on Twitter at @mthalman5513.