Investing for income can be tricky business. Some stocks have high yields because their stock prices have been pushed down. In some cases, there’s a reason that a stock’s price has been beaten down, such as fundamental problems at the company. That’s not the case for these S&P dividend aristocrats. All three are great stocks to own for the long-term.
Dividend Aristocrats are S&P 500 stocks that have increased their dividend payments for 25 years or more. These stocks are great places to look for steady income stocks.
The great news for income investors is that this group of stocks have outperformed the S&P 500 Index in four of the last five years.
But just because a company has been increasing its dividend for several years, doesn’t always mean the dividend yield is going to be very impressive. Take C.R. Bard for example, the stock has increased its dividend for 42 straight years, but its yield is only 0.6%.
Thus, investors should look for stocks that give them the best of both worlds: Long running dividend increases and high dividend yields.
Here are the 3 S&P dividend aristocrats with particularly high yields:
1. HCP (NYSE: HCP)
This healthcare REIT took over the top spot earlier this year as the highest yielding aristocrat. Its dividend yield is an impressive 5.3%, and it has increased its dividend payment for 28 years in a row.
Its two major segments (accounting for 65% of revenues) are big plays on the aging baby boomers. These two segments include senior living facilities (36% of revenues) and nursing facilities (29%). Its total portfolio is includes over 1,100 healthcare facilities.
But what makes HCP a steady performer is the fact that healthcare is relatively insulated from the issues that office and apartment REITs face. 2013 marked the fifth consecutive year of net operating growth of 3% or more for HCP. As of the first quarter, HCP’s net operating income growth was depicting 4.2% year-over-year growth for 2014.
2. AT&T (NYSE: T)
AT&T pays a 5.2% dividend yield. It has increased its payment for an impressive 29 straight years. AT&T’s dividend yield is also well above top competitor Verizon Wireless’ 4.3%.
Its pending acquisition of DirecTV will make the company a very big player in the pay-TV market. Effectively, if it acquires DirecTV, AT&T will be the second largest wireless provider and second largest pay-TV provider in the U.S. AT&T’s video customer base will jump from 5.7 million to 20.3 million.
The DirecTV deal comes just as AT&T is closing its acquisition of Leap Wireless. The Leap Wireless deal gave AT&T more spectrum and a strong presence in the prepaid market. Overall, AT&T appears to have a lot going on, including its agreement with NetBond and Equinix for offering virtual private networks in the cloud. It also has an agreement with Vantiv to bring mobile payment products to businesses.
3. Consolidated Edison (NYSE: ED)
This utility company offers the lowest yield of the three, coming in at 4.4%, but it has the longest running streak of dividend increases. Consolidated Edison has boosted its dividend for 39 consecutive years.
Although the utility business isn’t all that sexy, it’s a steady business that consistently generates earnings regardless of the economic backdrop. What’s more is that Consolidated Edison has weather-normalization clauses in its gas business, which helps make it more immune to demand fluctuations.
Consolidated Edison has gotten tis margin to 9.5% over the trailing twelve months, which is at decade highs. Trading at only 13.6 times earnings, Consolidated Edison is also the cheapest of the major utility companies. The likes of Duke Energy, Sempra Energy, and Exelon all trade at a P/E of 17 or higher.
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