Investing in stocks that pay dividends is a rewarding way to get both regular income from your investments and long-term growth potential. Historically, dividend-paying stocks have outperformed their non-dividend-paying counterparts, and given the low yields available from fixed-income investments like bank CDs and bonds lately, many investors have turned to dividend stocks as a way to generate cash to make ends meet.
One of the best signs of a healthy dividend stock is a track record of regular increases to dividend payments. According to historical data compiled by Dave Fish and available from DriP Investing Resource Center, fewer than 20 stocks have managed to boost their dividend payouts every single year for half a century. Those that have done so demonstrated an unparalleled ability to adapt to changing economic and business conditions and thrive, enhancing their profitability and sharing their wealth with shareholders.
There’s another common piece of investing advice: Buy what you know. Well, of those top dividend stocks, a half a dozen are names that nearly everyone has heard of, and the odds are good that you have products from one or more of these companies in your house.
Procter Gamble (PG)
Among these six dividend stalwarts, consumer giant Procter Gamble has the longest track record of dividend increases at 58 years. The stock currently yields 3.2 percent, which is well above the average for the stock market.
PG’s stable, which includes more than two dozen billion-dollar brands, has helped generate the cash to pay dividends over its long history. With Tide detergent, Gillette shaving products, Crest toothpaste and a host of other well-known items, Procter Gamble estimates that it serves 4.8 billion people around the world. With an average annual total return of almost 14 percent over the past 30 years, Procter Gamble has also served its shareholders quite well.
3M has a 56-year track record of annual dividend increases. The maker of Scotch tape and Post-it Notes has a dividend yield of 2.4 percent, and late last year, it made a huge 35 percent increase in its quarterly payout. The stock has given investors solid long-term returns of more than 12 percent annually over the past 30 years.
Even though most people only think of 3M for its consumer products, the conglomerate’s business goes into many other areas. You’ll find 3M products used in industries ranging from aerospace and energy to health care and food safety. With a long history of innovation, 3M has traditionally found new products to drive its growth, and the company continues to work in that direction today.
Coca-Cola’s products are ubiquitous across the globe, with the drink maker having sported the world’s No. 1 brand for years. On the dividend front, Coca-Cola scores well too, with 52 years of consecutive dividend increases and a yield of 2.9 percent helping to give long-term shareholders a 14.5 percent average annual return since 1984.
Coca-Cola has gone through some challenges lately, with poor results in its core carbonated-beverage line especially in its home North American market as health concerns weigh on demand. Yet with its move toward bottled water, tea and other popular noncarbonated drinks, Coca-Cola is working to reestablish itself as a growth leader.
Johnson Johnson (JNJ)
Johnson Johnson has raised its dividend for 52 straight years, producing a 2.7 percent dividend yield and an impressive 16.5 percent 30-year average annual return. Consumers have used Band-Aid bandages, Tylenol pain relief, and its namesake baby shampoo for decades, and the company gets the majority of its revenue from products in which it has dominant market share worldwide.
Recently, though, JJ has become a pharmaceutical powerhouse, with drugs like arthritis fighter Remicade and prostate-cancer treatment Zytiga having helped contribute to the pharma segment’s growth. JJ’s drug business is now the largest part of the company, and all signs point to its continued importance in Johnson Johnson’s future.
Home-improvement retailer Lowe’s has a track record of 52 years of dividend increases, yielding 2 percent. That dividend strength has contributed to total returns of 14.5 percent annually over the past 20 years.
Lowe’s isn’t the biggest company in the home-improvement sector, but it has still sported impressive growth from its No. 2 position in the industry. Even as the housing market has gone through massive disruptions over the past decade, Lowe’s has been able to weather the storm and find ways to sustain growth — even as competition from rival Home Depot (HD) has pressured the company.
For 51 years, consumer products company Colgate-Palmolive has raised its dividend. It now pays a yield of 2.1 percent, having given shareholders a better than 16 percent average annual return over the past three decades.
Colgate started as a soap and candle business, but it has grown into a wide-ranging company focusing on oral-care, personal-care, and home-care products, as well as pet nutrition. In particular, the company has leading global market share in toothpaste and standard toothbrushes, and Colgate has used that brand strength to boost sales of mouthwash and other related products.
Overall, these six stocks don’t just pay great dividends; they also have the fundamentally strong businesses you want to see from long-term investments. For those seeking reliable dividend income, this list of well-known companies is a good place to start.
To get more dividend ideas, Motley Fool analysts put together a free list of nine dividend stocks that should be in every income investor’s portfolio. You can follow Motley Fool contributor Dan Caplinger on Twitter @DanCaplinger. He has no position in any stocks mentioned. The Motley Fool recommends 3M, Coca-Cola, Home Depot, Johnson Johnson and Procter Gamble. The Motley Fool owns shares of Johnson Johnson and has the following options: long January 2016 $37 calls on Coca-Cola and short January 2016 $37 puts on Coca-Cola.