The stock market is dominated by technological stocks, companies with a brilliant business in artificial intelligence and high profits, but which practically do not lavish themselves on the payment of dividends. Beyond the technological furor, one of the most deep-rooted strategies in the market is to invest in companies that increase their dividend every year. This is an attractive trend because the shareholder receives extra money just for keeping the securities in their portfolio. But it is interesting whenever the securities raise their price, since it is of little use to receive a payment every year, every semester or every three months, if the shares later lose what was invested on the stock market. And currently, there are companies that do double duty: they distribute dividends in a constant and predictable manner and are also trading at historical highs.
Defenders of this strategy maintain that companies that arrive on time for their dividend distribution appointment hold up better in times of crisis than the main indices and that they are more profitable over time. In that sense, the arguments are based on the fact that they are companies with a solid and sustainable business and that allows them to gradually and constantly increase payments to investors. During the era of negative interest rates, investing in these companies became popular. While the debt did not generate profitability and conservative savings products such as interest-bearing accounts and deposits disappeared, these securities provided a refuge, since they usually offer stable behavior both in business and in stock market performance, with a dividend yield that is around 3%.
In the United States there is a select group of companies that have been increasing their dividend for at least 25 years in a row and are called dividend aristocrats. They must also meet other requirements, such as being part of the S&P 500 index (which groups together the largest US listed companies), having a capitalization of at least 3 billion dollars and having a daily trading volume of at least five million dollars. In 2024, this group will make up 68 large companies, in many cases leaders in their sectors, such as Colgate-Palmolive, Caterpillar or Procter & Gamble. And beyond ensuring the shareholder a dividend that grows every year, some of them are also trading at their highest historical levels, so investors, in addition to getting a juicy payment, are seeing their investment revalued.
In this sense, the American biopharmaceutical company AbbVie stands out. The company specialized in the fields of immunology, oncology, neuroscience and virology, and which markets the famous Botox brand, distributed a total of 5.9 euros per share in dividends in 2023 (+5%), which represents a profitability of 3.3%. The titles have risen 12% so far this year, to all-time highs.
The oil company Exxon Mobil continues to maintain its power despite the energy transition plans that are being undertaken in the West. It is the largest private oil company in the world and is remembered for being involved in several environmental scandals, such as the Exxon Valdez case in Alaska, considered the largest oil spill in nature. Despite this, it has taken steps to pivot its business towards low-emission energy solutions. Last year it distributed 3.4 euros per share among its shareholders, with a dividend yield of 3.3%.
In the industrial sector, the construction supplies supplier Fastenal stands out. The company appreciates 18% in the year after announcing sales forecasts for 2024 above the sector average. In 2023, it distributed dividends of $1.6 per share to shareholders (raising the dividend by 38%). It offers a profitability of 2.3%.
The distribution sector has several dividend kings. The consumer goods giant Procter & Gamble, which markets brands such as Ariel, Gillette, Pantene and Fairy, is one of the companies that most demonstrates its commitment to paying dividends to shareholders. Last year it paid $3.73 per share (a return of 2.33%) and in the first quarter the shares rose 8.58%.
Its competitor Colgate-Palmolive is also a classic among companies that increase their dividend every year. In 2023 he paid $1.91 per title (the profitability is 2.15%). Recently, the company's board of directors approved that this year the payment will be $2. The securities are trading at historical highs and have appreciated 11% over the year.
The list of dividend aristocratic companies that are trading at highs is completed by the insurer Aflac (distributed $1.68 per share, with a profitability of 2.06%) and the company specialized in producing industrial equipment Illinois Tool Works (paid $5.33 dollars per share with a profitability of 2.03%). Also the conglomerate specialized in the aerospace and military industry General Dynamics, which has been favored by the rearmament of defenses in the face of recent war conflicts. In 2023 it paid $5.22 per share (offering a yield of 1.89%). The electricity company Emerson Electric, which is also trading in the high zone, distributed $2,085 per share. Cardinal Health (paid $1.993 per share for a return of 1.78%), Lowe's Companies (paid $4.3 in dividends) and machinery maker Caterpillar (distributed a dividend of $5, a return of 1.42%) complete the list.
The European case
In Europe, there are also indices similar to those of the American dividend aristocrats. The most popular is the S&P Europe 350 Dividends Aristocrats, although in this case it is made up of companies that have been increasing payments among shareholders for at least 10 years in a row. In general, in the Old Continent it is more difficult to find such a large number of securities that distribute increasing dividends and are trading at maximums. Among the companies it brings together, the British defense sector BAE Systems stands out, which paid 2.085 pounds per share last year (represents a profitability of 2.05%), the also British Sage Group, which paid 0.187 pounds (a profitability of 1.5%) or the Swedish Assa Abloy, which offers a dividend yield of 1.52%.
Also in this group are other better-known companies such as the Danish Novo Nordisk (offers a dividend yield of 1.05%), which has been boosted by advances in the weight loss pill. The German SAP (1.11%) and the Dutch Wolters Kluwer (1.31%) complete the list of securities with shielded dividends and trading in the maximum zone, although they offer lower returns.
In general, companies that are generous in distributing profits among shareholders usually have very stable cash flows. Either because they operate in regulated businesses, or because they have a very solid position in the sectors in which they operate. In fact, according to some studies, companies that are able to maintain a constant dividend payment that increases over time tend to be better equipped than their competitors and usually the payment to the shareholder is a sign of solvency and credibility. Furthermore, in the long term, these types of companies with good and stable dividends have proven to have lower volatility.
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