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Top 10 U.S. Dividend Growth Stocks for 2013

In a previous article about the top Canadian dividend growth stocks for 2013, I promised that I would write about U.S. dividend growth stocks and the vast differences between the companies.  What is the biggest difference?  Well for one, the top dividend stocks in the U.S. are much more mature, and have a much longer history of dividends.  In fact, most of the top 10 US dividend stocks in the table below have 50 years + of dividend increases.  Compare that with the Canadian table where Fortis (FTS), the company with the longest history of dividend increases in Canada, with 21 years.

Dividend investing is a popular strategy these days, especially with low interest rates, and not a lot of other options to obtain income from your hard earned savings. If you’ve been following Million Dollar Journey for a while, you’ll know that I’m a fan of dividend growth investing because it provides dependable stream of increasing income. For those of you interested in this strategy as well, you can see an example through my leveraged dividend portfolio.

A question that I often get is “what are my favorite dividend stocks?”. As a dividend growth investor, I like to invest in dividend paying companies that have a history of increasing their dividends. As I keep my Canadian dividend stocks outside my registered portfolios, I keep my U.S dividend stocks within my RRSP.  I do this for a number of reasons –  you can find out more details in my article portfolio allocation.

Doing some background research, I dug up the the top 10 dividend growth stocks in the U.S.  I have created a list below, but more due diligence is required before you buy as the only criteria I used is number of years of increasing dividends.

Data as of April 12, 2013

Company Symbol Years of Dividend Growth 5 year Dividend Growth Rate Payout Ratio Current Yield
Diebold Incorporated DBD 59 3.66% 93% 3.88%
Proctor & Gamble Co PG 59 9.96% 51% 2.80%
3M Co MMM 54 4.41% 38% 2.35%
Lowe’s Companies Inc LOW 51 16.59% 37% 1.65%
Johnson & Johnson JNJ 50 8.03% 63% 2.95%
Coca-Cola Co KO 50 8.35% 53% 2.74%
Colgate-Palmolive Co CL 50 11.58% 48% 2.29%
PepsiCo Inc PEP 41 7.51% 55% 2.69%
Target Corp TGT 41 21.04% 31% 2.07%
Abbott Laboratories ABT 40 1.29% 35% 1.50%

As a disclaimer, I hold positions in 6 out of the 10 stocks listed above.  My holdings include PG, 3M, JNJ, KO, PEP, ABT.  For me, I like dividend stocks with a yield above 2%, a payout ratio less than 70%, strong financial statements, and, of course, a history of dividend increases.  Once I create a dividend stock watchlist, I wait for them to drop in price to reach a particular dividend yield (when to buy dividend stocks).

As previously mentioned, more due diligence is required before blindly buying company’s with the longest history of dividend growth.  For example, from the table above, the top stock, DBD, has a relatively high payout ratio for an IT company which may or may not be sustainable.

Do you own any of the stocks in the table above?

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FrugalTrader About the author: FrugalTrader is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 14 comments… add one }
  • Steve April 15, 2013, 10:30 am

    Those yields are pretty discouraging. Once you’re overloaded in the Canadian financial, energy and telecom players (many of which have yields > 4%) you have to lower your standards when investing in the US.

    It’s a same we don’t have blue chip staple companies in Canada, like KMB, PG, MMM, etc. I’m sure those companies will be around paying dividends for a long time, but by-gawd are they expensive.

  • Sampson April 15, 2013, 11:10 am

    @ Steve, but the return on US investments has outpaced Canadian ones. Total return is important. Many of these US stocks were yielding well over 4% a few years ago, but many have appreciated 30-40% over the past 3 years.

    I wonder FT about your overall inclusion criteria. Obviously sustained growth is the most important metric but doesn’t Diebold’s current payout ratio cause concern?

  • Goldberg April 15, 2013, 2:38 pm

    I wouldn’t rank by yrs. Just because they increased for 59 years does not mean they are more likely to continue than one with 39 years. Yet the 39 years wouldn’t show up in your search. I care about the next 30 years, not the last 30 years… either a company has the div philosophy you care for, or it doesn’t.

    Similarly, some companies did not increase their div during the financial crises yet have been paying a div since 1890 or something like that… they wouldn’t show up on your quick search but clearly have the desired shareholder philosophy. BMO and many other Canadian banks are examples, I don’t know the US market enough to name names.

  • Canadian Dividend Blogger April 15, 2013, 5:01 pm

    Fortis has 40 years of consecutive dividend increases. Also, Canadian Utilities has 29 years. Nothing when compared to some of the Dividend Kings of the S&P but not bad either.

  • Echo April 15, 2013, 5:29 pm

    @Canadian Dividend Blogger – Where are you getting 29 years for Canadian Utilities? I was under the impression they’ve raised dividends for 40 straight years, same as Fortis.

    http://www.theglobeandmail.com/globe-investor/news-sources/?date=20121101&archive=ccnm&slug=201211010830359001

  • Jonathan April 16, 2013, 2:00 am

    Diebold just announced their 60th annual dividend increase in February, but it was only 1% increase… not surpising given their payout ratio. But you have to like their commitment considering how erratic their earnings can be.

  • FrugalTrader FrugalTrader April 16, 2013, 8:48 am

    I agree, about Diebold. Their payout ratios are a bit too high for my liking (I do not hold any DBD).

  • Canadian Dividend Blogger April 16, 2013, 9:03 pm

    You’re right on CU – I was mistaken. I have their dividend record back 29 years, but yes it appears as of February 2013 it is now 41 years consecutive. Going to try to find their dividends exactly during this period for the records.

  • Namm April 18, 2013, 1:08 pm

    I’m just curious how you find out how long a company has been paying out dividends and the five year dividend growth rate.

    Are you using something like google finance to find out what the dividend is now and dividing it by the dividend 5 years ago? Like:

    (DIVNOW-DIVPAST)/DIVPAST

  • The Dividend Guy April 19, 2013, 7:11 am

    I agree with Steve, you picked some low dividend paying dividend stocks ;-)

    I tend to ignore all stocks below 3%. I think there is enough strong companies in US paying 3%+.

    I’ve made an exception with KO which I bought when it was paying 2.75% but my dividend yield base on my cost of purchase is already over 3% after a year since they boost their dividend each year.

    I like KO, JNJ, PG and even CL (even thought the div is too low right now).

    Are you going to track your list performance throughout the year?

    Great list!

  • Danielle April 20, 2013, 10:59 am

    Namm: google finance can easily show historical dividend data

  • Dividend April 24, 2013, 10:26 am

    Thanks for providing the list of dividend growth stocks. I like the stock PepsiCo, Inc. This is a global food and beverage company that is organized into four business units such as PepsiCo Americas Foods, PepsiCo Americas Beverages, PepsiCo Europe and PepsiCo Asia, Middle East and Africa.

  • Renate Martin December 19, 2013, 12:19 pm

    Does anyone know about Fidelity Income T funds and their dividend paying ability.

  • Ed Rempel December 25, 2013, 2:00 pm

    Hi Renate,

    Fidelity’s income T funds are more about income, tax-efficiency and good management, than about dividends.

    They have a variety of income funds, but for example their Global Dividend Class T8 made 22.8% in the last 12 months and paid out 8% divided into monthly payments on which you would pay no tax at all this year. Little or nothing will be taxed as a dividend.

    Since it is a corporate class fund, it tends to have little or no tax. The 8% distribution is considered to be entirely return of capital. The way this works is that dividends and capital gains received are used to pay the expenses of the fund (or allocated to other funds within their class structure), so the gains of the fund are deferred capital gains.

    Fidelity has very smart fund managers. They have 2,000-3,000 new analyst grads apply for a job each year and only hire a handful. However, most other fund companies also have similar income and corporate class fund structures.

    Does this answer your question, Renate?

    Ed

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