Two Dividend Aristocrats

12/04/2008 1:00 pm EST


Charles Carlson

Editor, DRIP Investor

Charles Carlson, editor of the DRIP Investor, finds two companies that have been increasing their dividends for 25 years.

Dividend investing has been a mine field this year. According to Standard & Poor’s, there were 138 dividend cuts or suspensions in the third quarter of this year. That was a 557% increase over the year-earlier quarter.

To put it bluntly, it was the worst September for dividends since S&P started keeping dividend records in 1956. Not surprisingly, roughly two-thirds of the dividend cuts were in the financial sector. For the 12 months ended September 30th, positive dividend actions outnumbered negative actions by about six to one—well below historical norms.

It is difficult to see the dividend numbers improving any time soon. Many companies continue to see their balance sheets stretched, and the need for capital continues to run high in the financial sector. Furthermore, profits will be pinched by recession, thus providing less cushion to fund dividends.

All of which begs the question—what’s a dividend investor to do? The trick, of course, is to own companies with dependable and rising dividend streams.

Enter the Dividend Aristocrats.

So named by S&P, Dividend Aristocrats are those companies in the S&P 500 that have boosted their dividends annually for at least the last 25 years.

One is Emerson Electric (NYSE: EMR). The manufacturer of electronics and electrical equipment yields 4%. The company recently boosted its dividend 10% to a quarterly rate of 33 cents per share—the 52nd consecutive year the company has boosted its dividend.

To be sure, the recession will impinge on the company’s earnings over the next 12 to 18 months. Still, the firm is expected to earn around $3.00 per share for fiscal 2009 ending in September, providing ample coverage of the current annual dividend of $1.32. The stock has been weak in line with most stocks, but offers an attractive dividend play for long-term investors. (The shares closed below $34 Wednesday—Editor.) Emerson’s direct-purchase plan permits investors to buy the first share and every share directly from the company. Minimum initial investment is $250.

Another interesting stock on the list is Dover (NYSE: DOV), a diversified concern with businesses in industrial, engineered systems, fluid management, and electronic technologies markets.

Despite a sluggish economy, the firm managed to grow net income 8% in the latest quarter, beating the consensus earnings estimate. The company’s diversified business portfolio is helping stem weakness in any one area. Still, the consensus earnings estimate reflects expectations for an 8% decline in per share profits in 2009.

Based on the 2009 estimate of $3.33, Dover trades at just seven times the estimate—an attractive valuation for such a quality company. The current quarterly dividend of 25 cents per share appears well covered by earnings. Yielding more than 4%, Dover offers an attractive total-return play for dividend-hungry investors. (It closed at $28 Wednesday—Editor.) The company’s direct-purchase plan permits initial purchases directly. Minimum initial investment is $500.

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