Dividend stocks have finally been recognized as the superstars that they are. While in the past many investors focused on growth stocks for share price appreciation, the masses have come to see that a great dividend combined with good growth prospects can provide a safe, reliable way to grow your investment.
If you’ve read any of my articles, you know that I am a huge dividend fan. I’ve been writing about dividend-paying companies for about a year, I’ve designed a ratings system to help me select the best companies, and I’ve built my Perfect Dividend Portfolio (PDP), featuring ten stocks that I believe will perform better than other dividend portfolios.
I continue to analyze dozens of dividend stocks every week, still looking for those elusive companies that hold the potential for share price growth with excellent dividend yield. There are some companies out there, but they’re not easy to find.
I look for a combination of excellent dividend-raising history, high current yield, and superior potential for earnings growth. Earnings are important, and I take into account the projected five-year earnings growth rate as well as the current PE and the past twelve months’ share price increase.
In this article today I am examining several long-term dividend payers that have substantial past dividend growth rates (DGR), to determine if they offer the opportunity for strong growth of both share price and dividends in the future.
P&G is a Fund Manager’s Dream
The Procter & Gamble Company (NYSE:PG)’s products aren’t nearly as sexy as those of Apple or Google, but the fact that most of their products are considered “staples” means that they sell in nearly every economic environment. P&G is popular with value investors like Warren Buffett ($4 billion, 4.8% of his portfolio) and Donald Yacktman ($2 billion, 10.5% of portfolio), and the company’s 1Q results beat analyst estimates for earnings per share, operating profit and cash flow.
Bill Ackman of Pershing Square Capital has taken a substantial position in The Procter & Gamble Company (NYSE:PG) over the past year; it represents approximately 22% of his portfolio, and he is calling for an intrinsic value of $125 per share by 2015, approximately a 60% increase versus the current share price. The Procter & Gamble Company (NYSE:PG) had been suffering EPS declines since the CEO, A.G. Lafley, retired in 2009, but he has recently come out of retirement and taken the reins of the company again, and the EPS decline has been reversed.
With a 5-year earnings growth forecast of nearly 9%, The Procter & Gamble Company (NYSE:PG) looks to be in good position to continue churning out a great dividend for years to come.
Clorox Not Doing So Well
The Clorox Company (NYSE:CLX) is another entrenched consumer goods company that has a lengthy history of rewarding shareholders with ever-growing dividends. Clorox is currently trading at $87 and yields 3.0%; the company has been raising dividends consistently for 36 years, and has a 5-year DGR of 9.9%.
The Clorox Company (NYSE:CLX) most recently raised its dividend by 11% in May, after reporting slightly negative numbers for FY3Q. Most of the consumer product category had a difficult 1Q13, for several different reasons, and Clorox was no exception. The Clorox Company (NYSE:CLX) blamed most of its disappointing results on weather (a colder quarter resulted in double digit declines in the sales of charcoal versus the prior year) and unfavorable foreign currency exchange rates with some countries in South America.
Again, no sexy new products in the The Clorox Company (NYSE:CLX) stable–just good, solid brands like the eponymous Clorox, Formula 409, Pine-Sol, Tilex and Liquid-Plumr. While the company will likely be able to continue paying its dividend with little difficulty (59% payout ratio), it’s difficult to see much potential for share price appreciation given the low earnings growth.
Try Kimberly-Clark instead
Kimberly Clark Corp (NYSE:KMB) is trading at $96 and yields 3.3%. The company has been raising its dividend every year for 38 years, and sports a 5-year DGR of 7%. The last increase in the dividend was in February, when the company raised it by 9.5%.
The company’s share price has been down since the earnings were announced in May, although I am not exactly sure why. The earnings per share beat analysts’ estimates by over 10%, and were up 19% versus year-ago. Net income also beat the same quarter a year ago by 13.5%. Full year 2013 earnings are estimated to come in at 9% higher than 2012.
Last week TheStreet.com reiterated its Buy rating and gave Kimberly Clark Corp (NYSE:KMB) an A+ score, citing share price growth, EPS growth, increase in net income and a reasonable valuation.
Conclusion
I love The Procter & Gamble Company (NYSE:PG) right now, and I like Kimberly Clark Corp (NYSE:KMB). The Clorox Company (NYSE:CLX) goes on my Watch list.
I’m looking forward to getting my hands on the updated Dividend Champions file from David Fish; it should be released this week. Can’t wait to start sorting and screening with all of his updated numbers for July.
Karin Hernandez has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.
The article 3 Boring Dividend Stars with Great Dividend Growth Rates originally appeared on Fool.com.
Karin is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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