When screening for dividend paying stocks, many investors make the mistake of limiting themselves to stocks with a history of dividend increases.
There’s a lot to be said for companies that have increased their dividend payments for 25 years or more.
These stocks even have their own classification, dubbed “dividend aristocrats.”
This list of stocks totals around 50 companies within the S&P 500, all of which have managed to increase their dividend payments for 25 consecutive years or more. Investors love these stocks, and rightfully so.
Take dividend aristocrat Genuine Parts (NYSE: GPC) as an example. Shares are up 130% over the last five years, versus the S&P 500’s 85% return. It has been one of the best-performing stocks in terms of stock price and still offers you 2.6% dividend yield that includes 57 years of consecutive dividend payment increases.
But the issue with dividend stocks is that they are not all created equal.
Investors aren’t always as lucky as Genuine Parts owners. Enter another dividend aristocrat, Nucor Corp. (NYSE: NUE). Sure, it offers a 2.8% dividend yield and has boosted its payment for 40 straight years, but the stock is up just 15% over the last five years.
This teaches us that due diligence is still required; investing in a stock simply because it is on the dividend aristocrat list isn’t a prudent investment strategy.
And by focusing only on dividend aristocrats, you’ll miss a number of other opportunities. Here are three great dividend stocks you might be overlooking:
Great Dividend Stock: No. 1: Ford Motor Co. (NYSE: F)
Ford first started paying a dividend in the 1980s, but took a break during the financial crisis. It reinstated its dividend in 2012 and has been steadily increasing it since then. Its dividend yield is now up to an impressive 3.4%, which is only a 38% payout of earnings.
What’s more is that the second quarter of 2014 marked the 21st straight quarter that Ford posted a profit. But shares are still down 15% over the last month.
This comes as the auto maker lowered its earnings guidance for 2014 and 2015. It now expects earnings to come in at levels similar to 2011 thru 2013. Its plan of generating earnings of over $2 a share will be delayed until at least 2016. But the stock trades at a P/E (price-to-earnings) ratio of just 9, making it the cheapest of the major automakers.
It still has the No. 1-selling pickup truck in the United States, with its F-Series. The 2015 F-150 model will introduce an all-new aluminum body, which should help the truck continue its streak of 30-plus years as the top-selling pickup truck.
Great Dividend Stock No. 2: The Blackstone Group L.P. (NYSE: BX)
Blackstone is a publicly traded asset management company, managing over $275 billion. Its alternative investments covers the likes of private equity funds, real estate and hedge funds. This asset manager has managed to grow its assets under management (AUM) — a key figure for asset managers — by an annualized 26.5% from 2011 to 2013.
Blackstone offers the highest yield of our three listed stocks — with a 6.7% distribution yield. What’s more is that its distribution is only a 45% payout of earnings. It has been paying a distribution for around five years and only recently got serious with increasing its distributions.
This looks set to continue over the next couple of years, Revenue has been higher in each of the last five years. And as of the second quarter, Blackstone had $4.2 billion in unrealized gains from various investments (roughly $7.20 per share). That means Blackstone has $4.2 billion in gains from successful investments (e.g. private equity, real estate, etc.) that it can use to further boost its distributions to shareholders over the coming years.
Great Dividend Stock No. 3: Kraft Foods Group (NASDAQ: KRFT)
Kraft Foods Group is a result of the 2012 spinoff from Mondelez International (NASDAQ: MDLZ), and has put Kraft Foods Group as one of the largest consumer packaged food companies in North America. Its key brands includes Kraft, Oscar Mayer, JELL-O, Planters and Maxwell House.
Since its 2012 spinout, it has been raising its dividend payments. Its dividend yield is now up to 3.7%, which is higher than you’ll get from some other foods companies, including General Mills (NYSE: GIS), Kellogg (NYSE: K) or Campbell Soup Co. (NYSE: CPB).
To go along with its robust dividend, Kraft also introduced a $3 billion buyback program at the end of 2013, which is good enough to reduce shares outstanding by 9%. With a P/E ratio of 14, Kraft is also very attractive from a valuation standpoint.
In truth, Kraft isn’t an exciting company, but with its size, it enjoys economies of scale and over time plans to boost capital returns with improved manufacturing efficiency.
These three stocks are all relatively new when it comes to consecutive dividend increases. But don’t miss out on these up-and-coming dividend payers just because they aren’t dividend aristocrats. They also offer very enticing yields at a time when the average dividend yield for the S&P 500 is a mere 1.9%.
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