The ‘holy grail' of dividend growth investing is to find businesses that offer:
This article takes a look at 4 businesses that have:
This combination is difficult to find in today's low interest rate environment.Low interest rates increase the share prices of high dividend stocks, reducing their yields.
Source: Multpl.com
You can see the effect of rising interest rates on the S&P 500's dividend yield.
Source: Multpl.com
The trade off between growth and dividends makes it difficult to find stocks with both a high payout ratio and solid growth prospects.The more a company pays out in dividends, the less it has to reinvest in growth.
Management must be very efficient with its capital allocation policies to have both a high dividend payout ratio and solid growth prospects. There is less room for error.
Finding businesses that consistently pay steady or rising dividends and have safe operations is difficult.Strong competitive advantages in the business world are rare.There are only around 180 stocks that have paid steady or increasing dividends for 25+ years.
Businesses with long dividend histories have proven the stability of their operations.
Consistent High Yield Stock #1:AT&T
AT&T stock currently offers investors a 5.2% dividend yield.This is more than double the S&P 500's current 2.4% dividend yield.
AT&T has paid increasing dividends for 32 consecutive years.As a result AT&T is member of the exclusive Dividend Aristocrats Index.To be a Dividend Aristocrat a stock must pay increasing dividends for 25+ years. Click here to see all 50 Dividend Aristocrats.
The company's dividend payment history is shown in the image below.
AT&T has managed to consistently increase its dividend over the last 3 decades because it has a strong competitive advantage.The wireless market in the United States is dominated by just 4 companies:
Together these 4 companies have ~90% market share.AT&T and Verizon each have over 30% market share.
Competition is reduced when an industry is dominated by only a few large businesses. Lower competition is not good for consumers, but great for the few dominant businesses.
There's several reasons why the wireless industry is subject to domination by a few large corporations.
These characteristics give AT&T its strong competitive advantage and the ability to consistently raise its already high dividend over time.
The company offers investors more than a high dividend and consistency…
AT&T's earnings-per-share and dividends will very likely continue growing.
AT&T's growth plans revolve around recent acquisitions of DirecTV, Lusacell (a Mexican wireless provider), and Nextel Mexico.
Source: AT&T 2015 Analyst Presentation, slides 39 and 42
The DirecTV acquisition gives the company better cross-selling opportunities. It will aslo give AT&T stronger digital content distribution.DirecTV also has a large presence in South America.AT&T will leverage DirecTV's South American presence over time.
AT&T is focusing on the Mexican market. The company announced it will invest $3 billion to extend its high-speed mobile internet to 100 million Mexican consumers by 2018.
