Dividend stocks outperform non-dividend-paying stocks over the long run. It happens in good markets and bad, and the benefit of dividends can be quite striking: Dividend payments have made up about 40% of the market’s average annual return from 1936 to the present day. But few of us can invest in every single dividend-paying stock on the market, and even if we could, we might find better gains by being selective. That’s why we’ll be pitting two of the Dow Jones Industrial Average‘s dividend payers against each other today to find out which Dow stock is the true dividend champion. Let’s take a closer look at our two contenders now.
Tale of the tape
E I Du Pont De Nemours And Co (NYSE:DD) has been part of the Dow for 77 consecutive years, which makes it one of the longest-tenured components on the index. It’s also one of the oldest companies in the United States, with roots that go back to 1802. DuPont is still headquartered in Wilmington, Del., after all these years, and it’s now the second-largest chemical company by revenue (and the largest by net income) in the U.S.
E I Du Pont De Nemours And Co (NYSE:DD) makes a wide range of products that have reached consumer markets over the years, and it’s likely that at least a few things in your house have some origins in a DuPont plant.
United Technologies Corporation (NYSE:UTX) has been part of the Dow for 74 consecutive years. It originated as United Aircraft following the breakup of a 1930s aviation monopoly and has been a government contractor since its earliest days. Today, the Connecticut-based conglomerate is considerably more diversified: It owns the world’s largest elevator-manufacturer and has significant other building-systems operations as well. It’s not the largest defense contractor for the U.S. government (last year it ranked sixth by profit), but United Technologies Corporation (NYSE:UTX) relies less on Uncle Sam than many of its peers.
| Statistic | DuPont | United Technologies |
|---|---|---|
| Market cap | $48.3 billion | $83.6 billion |
| P/E ratio | 10.6 | 13.5 |
| TTM profit margin | 13% | 10.2% |
| TTM free-cash-clow margin* | 6.3% | 4.8% |
| Five-year total return | 40.7% | 49.8% |
Source: Morningstar and YCharts. TTM = Trailing-12-month.
*Free-cash-flow margin is free cash flow divided by revenue for the trailing 12 months.
United Technologies Corporation (NYSE:UTX) has size and growth on its side, but DuPont has better margins. It looks like this might be a close battle.
Round one: endurance
E I Du Pont De Nemours And Co (NYSE:DD) has been paying dividends since 1904, according to its investor relations website. That puts United Technologies at an immediate disadvantage, as the company has only existed since the 1930s. No matter how far back we go, United Technologies Corporation (NYSE:UTX) just can’t beat DuPont here.
Round two: stability
Paying dividends is well and good, but how long have our two companies been increasing their dividends? The same dividend payout year after year can quickly fall behind a rising market, and there’s no better sign of a company’s financial stability than a rising payout in a weak market (so long as it’s sustainable, of course). E I Du Pont De Nemours And Co (NYSE:DD) has increased its dividends twice in the last two years, but its payouts did not change from 2007 all the way through 2012. The last time United Technologies Corporation (NYSE:UTX) failed to increase its dividend was in 1994. This one goes to the defense contractor.
