If company has been not only paying, but raising, dividends for 25 years straight, then it earns the coveted title of one of the “dividend aristocrats.” The reason for this title may not be apparent at first, but when you realize just how difficult it is for company to not only pay a dividend, and to maintain that dividend, but to generate so much free cash flow every year that it is able to increase that dividend, then assigning it the elite name of “aristocrat” becomes more obvious.
While I am not thrilled about people just buying stocks because they pay dividends, I give dividend aristocrats a bit more leeway. If a company is able to constantly increase its dividend because it is generating free cash flow, in all likelihood it is also generating earnings growth that is greater than 7% annually.
Retirement investors, who particularly enjoy dividend stocks, need to exceed the true inflation rate of 8% annually. Dividend aristocrats give them a better opportunity to do so.
Dividend Aristocrats with Growth Prospects: Genuine Parts Company (GPC)
Genuine Parts Company (NYSE:GPC) has earned my respect because it has built a business that I love. It’s also about as boring a business as you can get. It is one of the largest distributors of automobile replacement parts. It also is a distributor of industrial parts.
There are two words in its description that I love, namely, “distributor” and “parts”. Distribution of product is a fabulous business. If you’re able to achieve scale and have enough of a footprint, you are just being paid to deliver stuff. You don’t have to manufacture it. That removes an awful lot of overhead and complexity from your business.
The reason “parts” catches my attention is because every piece of machinery has parts. All parts break. They wear out. They need to be replaced. So there is constant demand for them.
That is why GPC stock has been raising its dividend for more than 60 years. That dividend is now $2.88 per share, creating a yield of 3.17%.
Dividend Aristocrats with Growth Prospects: PPG Industries, Inc. (PPG)
Speaking of boring dividend aristocrats, how about a coating and paint company that is been in existence for more than hundred 30 years? Welcome to PPG Industries, Inc. (NYSE:PPG). Peter Lynch always said boring stocks result from boring businesses, and boring businesses are often companies that are overlooked, yet have done extraordinarily well over time.
What makes PPG so special? I’m reminded of a line from a David Mamet film, “Everybody needs money. That’s why they call it money.” Well, everyone needs paint. That’s why they call it paint.
Just think about how many things need paint. Look around you, even in the room that you’re in right now. Go take a drive around, and look how much paint is necessary in daily life. Paint also wears out. When ownership of something turns over, paint is needed. None of this even speaks to coatings, which represents a massive portion of PPG business.
PPG has been lifting its dividend every year for more than 40 years. The dividend is presently a $1.80 per share, which equates to a yield of 1.67%.
Dividend Aristocrats with Growth Prospects: Ecolab Inc (ECL)
Sticking with the theme of dividend aristocrats that provide things that everybody needs on a regular basis, have you ever heard of a company called Ecolab Inc (NYSE:ECL)? Neither had I until recently.
Ecolab provides water treatment and sanitizing technology. It cleans and sanitizes everything including manufacturing products, food and beverage processing products, chemical products, power generation products, pulp and paper, and commercial laundry businesses. It also cleans and sanitizes products in all of the industries that you regularly interact with: hotels, healthcare, food service, education, and retail.
This is a $100 billion global business. The company also has an interesting insight. It believes that for every dollar in revenue-generating customers, there’s the potential to sell them another six dollars worth of products.
The dividend is presently $1.64 per share, which equates will yield a 1.12%. ECL even expects diluted EPS to increase between 13% and 18% this year.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at TheLibertyPortfolio@gmail.com.
