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The dividend aristocrats: antidote to low interest rates?

By Sheyna Steiner ·
Friday, December 3, 2010
Posted: 12 pm ET

Stodgy old dividend-paying stocks have received a lot of attention recently. With bond yields dragging and CD rates stagnating at record lows, it's no wonder.

For investors seeking income-producing investments, "I think in today's environment that people should be focused on dividend-paying stocks. You read it all over the place -- but don't reach for the highest yield. If you buy very good, solid, blue chip companies and get a diversified portfolio, you can get 3 or 3.5 percent without working too hard," says Herbert Hopwood, CFP and president of Hopwood Financial Services in Great Falls, Va.

Not only can investors get consistent income, but they may also be able to even get an income stream that increases each year by investing in a few of the dividend aristocrats -- within a diversified portfolio.

The dividend aristocrats are companies which have raised dividend payments each year for the past 25 years.

"For example, the 10-year Treasury is yielding 3 percent. This is not recommending, but you can buy Johnson & Johnson for a dividend payment of over 3.5 percent currently and they are going to raise their dividend every year for the next 10 years most likely," Hopwood says.

"In 10 years that yield will be closer to 7 percent and the 10-year Treasury you bought today will still be yielding 3 percent," he says.

Standard & Poor's tracks the S&P 500 companies that do increase dividends each year in their S&P 500 Dividend Aristocrats index. Membership in the index is reviewed each December. On Thursday, Standard & Poor's released details about who's in and who's out this year.

Only three companies failed to make the cut: Lilly (Eli) & Co.; Supervalu Inc.; and Integrys Energy Group Inc.

A few companies were added, effective after Dec. 17: McCormick and Co. Inc.; Hormel Foods Corp.; Ecolab Inc.

Dividend aristocrat stalwarts include, among others:

  • Walgreen Co.
  • Lowe's Cos. Inc.
  • Exxon Mobil Corp.
  • McGraw-Hill Cos. Inc.
  • Coca-Cola Co.

Obviously, there are no guarantees. But companies still raising dividend payments after the past couple of years certainly deserve their place in the aristocracy.

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