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Headlines
- Consistent Dividend Growth: Companies that regularly increase dividends, like Verizon, Johnson & Johnson, and Nike, show significantly higher average annual returns compared to those with stable or reduced payouts.
- Strong Financials: Verizon, Johnson & Johnson, and Nike are notable for their robust free cash flow and consistent dividend growth, despite varying growth profiles and market conditions.
- Attractive Valuations: These companies currently offer appealing valuations relative to their earnings, making them promise for long-term dividend growth.
Investing in dividend-paying companies can be highly rewarding, especially when those companies consistently boost their payouts. Data from Ned Davis Research and Hartford Funds highlights that over the past 50 years, firms that have increased or initiated dividends have yielded an average annual total return of 10.2%. This figure significantly surpasses the 6.7% return of companies with unchanged dividend policies and the -0.6% return of those that reduced or eliminated dividends.
Verizon (NYSE:VZ)
Verizon stands out with a dividend yield exceeding 6%, substantially above the S&P 500's average of less than 1.5%. This high yield is attributed to Verizon's appealing valuation, trading at 15 times earnings and under 10 times its forward P/E ratio, in contrast to the S&P 500's 24 times earnings and 23 times forward P/E. Despite recent challenges, including modest revenue growth and a decline in adjusted earnings per share, Verizon's substantial free cash flow—rising to $8.5 billion—ensures it can maintain and potentially increase its dividend, continuing its impressive streak of 17 consecutive annual dividend increases.
Johnson & Johnson (NYSE:JNJ)
Johnson & Johnson offers a nearly 3% dividend yield and has maintained a remarkable dividend increase streak for 62 years, placing it among the elite Dividend Kings. The company’s current valuation is attractive, trading at 11 times earnings and approximately 17 times forward earnings, following its recent spin-off of the consumer healthcare segment, Kenvue. With a robust balance sheet featuring $25 billion in cash and marketable securities, and $7.5 billion in free cash flow, Johnson & Johnson is well-positioned to sustain its dividend growth. Its strong financial position supports continued acquisitions and organic growth, further bolstering its ability to enhance dividends.
Nike (NYSE:NKE)
Nike’s dividend yield stands at close to 2%, with a 22-year track record of increasing payouts, including a 9% boost last November. Although the company has faced recent challenges and strategic missteps affecting its market share, Nike's stock is currently valued at around 22 times earnings—a more attractive level compared to its historical premiums. The company’s cash reserves, amounting to $11.6 billion at the end of its 2024 fiscal year, support its ongoing dividend payments and stock repurchase programs. As Nike navigates a path to recovery, its strong cash flow and low stock valuation offer potential for future gains.
By focusing on these high-performing dividend stocks, investors can benefit from companies with proven records of growing payouts and strong financial health.
